Category Archives: Blog

BANK ACCOUNT DEPOSIT IS NOT A ‘TRANSFER’

By: Craig W. Stewart

A ‘transfer’ does not include a bank account holder’s regular deposit into his own unrestricted checking account. A Chapter 7 debtor, running a Ponzi scheme, deposited funds from his victims into his checking account. The Ponzi scheme collapsed, an involuntary Chapter 7 was filed, and the Chapter 7 Trustee commenced a fraudulent transfer action arguing the deposits were made with actual intent to hinder, delay or defraud creditors. The bankruptcy court ruled they were not avoidable as fraudulent transfers and the District Court affirmed.

On appeal, the Fourth Circuit concluded that deposits by a debtor into his own unrestricted checking account in the regular course of business did not constitute transfers. The above case protects the debtor in his ordinary course of business. The Trustee will not be able to recover funds in cases involving even fraudulent transfers to and from the debtor’s own bank account. This is a key component to allow debtors in bankruptcy to continue using their checking accounts without the fear of Trustee intervention.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Laura Margulies and Craig Stewart are attorneys in the firm who represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

Chapter 13 Confirmation Denied Due to Excessive Retirement Contributions

By Laura Margulies, Esq.

In the recent case of In re Miner, 2017 wL 1011419 (Bankr. W.D. La. 3/14/17), the court denied confirmation of the debtor’s Chapter 13 plan because the court believed the debtor was contributing too much to his retirement plan at the expense of his unsecured creditors. Furthermore, the court found that the plan could not be confirmed since it did not provide for a step up in payments once his 401K loan was paid off. In this case the debtor had testified that he contributed approximately $700 per month towards his 401K plan for the last 5 years. However, the court did its own calculation and found that if that were true, he would have more funds in his 401K plan than what the debtor actually had. The court decided to give guidance to debtors and indicated that a 3% contribution would be presumed reasonable, but any contribution above 3% would be evaluated on a case by case basis.

Basically, the courts frown on debtors who start contributing more towards their retirement accounts than they did prior to filing. In addition, all Chapter 13 trustees will expect debtors to increase the funding of their plans if during the life of the plan the debtors’ 401K loan is paid off.

If you are considering filing a bankruptcy case, please first consult with the attorneys at the law firm of Laura Margulies & Associates, LLC. They have assisted thousands of clients through the bankruptcy process and are sensitive to their clients’ needs. Laura Margulies and Craig Stewart are attorneys in the firm with decades of bankruptcy experience. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com or call us at 301-816-1600 to schedule an appointment.

Using Bankruptcy to Break the Cycle of Payday Loans

By Craig Stewart

A recent article in the Washington Post, “The Trap of Payday Loans” highlights the very serious problems that consumers face with payday loans. Payday loans fill a very important need for people in a financial bind, which leads to exploitation–how do I pay the electric cut-off bill to keep my family warm or cool? How do I pay the car insurance to keep from driving illegally? How do I pay the rent after being out a week sick on my hourly job? The quick solution offered to people is to take out a payday loan. No credit needed. Just a job and a checking account, they say. You can borrow the $200 you need to keep your electric on for only a small fee.

Sounds good at first, maybe even a miracle. But the interest rates are frequently in the triple digits. Because the payday lenders do not take into account your ability (or lack thereof) of repaying the loan, most consumers end up in an endless cycle of having to take out one payday loan to pay off their prior payday loan. Once this cycle starts, it can seem impossible to break. Especially because the payday lenders are taking the payments directly out of your checking account. If you fall behind, the payday lenders harass you to no end, some even threatening criminal prosecution in violation of consumer protection laws.

If you find yourself unable to break out of the cycle of payday loans, despite your best efforts, filing for bankruptcy can be a powerful solution. As soon as you file for bankruptcy, the automatic withdrawals must stop under the bankruptcy laws. In addition, the amounts you owe the payday lenders can be fully discharged in bankruptcy. Filing for bankruptcy can also discharge past due utility bills, rent due from current and prior leases, as well as stopping repossessions and evictions under certain circumstances.

If you are caught in an endless cycle of payday loans and are struggling to break free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Please call us for a free consultation today. Laura Margulies and Craig Stewart are attorneys in the firm with decades of bankruptcy experience. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

Debtor Must Tell Creditor That Bankruptcy Case Was Filed, Not Just Attorney Hired

By Laura J. Margulies, Esq.

Once I am hired as an attorney for a debtor, I advise my client to let any creditors who call know that he or she has retained my firm as his or her counsel and that any questions regarding them must be made to my office. Once the bankruptcy case is filed, I advise my clients to let any creditor who calls them know that they filed bankruptcy and give the creditor their case number. Once the creditor knows about the filing and is given a case number, it generally does not contact the debtor again.

In the recent case of Ferrer v. Lou Sobh Automotive of Jax, Inc. (In re Ferrer), 2017 WL 401188 (Bankr. M.D. Fla. 1/30/17), a car lender contacted the debtor after he filed for bankruptcy and asked him to stop by to sign a new contract for the purchase of his vehicle. The car was purchased just two days prior to his filing. The debtor advised the lender that he had hired a bankruptcy attorney, and directed the lender to call his attorney. The debtor did not list the lender on his Schedules and the lender did not get notice of the bankruptcy filing. Ultimately, the debtor did enter into a new loan agreement with the lender. The debtor believed that the lender’s contact with him violated the automatic stay and brought an action against it. The court however, found that the lender did not wilfully violate the automatic stay, as just telling a creditor that you hired a bankruptcy attorney is not the same as letting the creditor know that you actually filed a bankruptcy case. Furthermore, the court stated that even if it found that the lender had violated the automatic stay, the debtor presented no evidence that the violation caused him any actual damage.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com .

Debtors Cannot Contest the Foreclosure of a “Surrendered” Home

By Laura Margulies, Esq.

In the recent case of Failla v. Citibank, NA (In re Failla), 2016 WL 5750666 (11th Cir. 2016), the 11th Circuit held that debtors who indicated their intention to “surrender” their real property in their Chapter 7 case, could not later contest the foreclosure of the property. In Failla, the debtors were facing a foreclosure sale of their home, and filed a Chapter 7 case prior to the sale. The sale was halted and they continued to contest the sale in state court, while indicating on their Statement of Intent their intention to surrender the property.

Rather then file the usual motion for relief from stay to continue the foreclosure sale, the lender filed a motion to compel the debtors to surrender their property. The bankruptcy court granted the lender’s motion, which was affirmed on appeal. The debtors had argued that the word surrender applied only to the Chapter 7 trustee and not the lender. The court rejected this argument and found that the term surrender means to both the trustee and the lender.

This 11th Circuit ruling was rejected in the subsequent case of In re Ryan, 2016 WL 6102312 (Bankr. D. Hawaii 2016). In Ryan, the court held that a lender did not have the right to compel surrender of a property, even if the debtor had indicated “surrender” in his or her statement of intent. It further held, that a debtor could still raise objections to a foreclosure sale in state court notwithstanding the debtor’s statement of intent indicating his intent to surrender the property.

Until this issue is resolved, it may be best not to indicate “surrender” in the Statement of Intent if the debtor plans to challenge a foreclosure sale. If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com.

Debtors May Avoid Lien In Chapter 13 Case That They Did Not Avoid in Prior Case

By Craig Stewart, Esq. and Laura Margulies, Esq.

If a debtor did not avoid a judicial lien on a piece of real estate he owed when he filed a Chapter 7 case, he may avoid it a subsequent Chapter 13 case, In Re Fielder, 2016 WL 6879252 (Bankr. D. Or. 11/16/16) In Fielder, at the time the debtors filed a Chapter 7 case they had a judicial lien on their real estate, but they did not move to avoid it and they later received a discharge in that case. Seven years later the same debtors filed a Chapter 13 case and sought to avoid the same lien in the Chapter 13 case. The judgment lien holder objected.

The Chapter 13 debtors proposed a chapter 13 plan which provided that they would be seeking to avoid the lien on the property because it impaired their exemptions. The lien holder argued that the debtors were barred from avoiding the lien because they had failed to avoid the lien while in the Chapter 7 case. In the alternative, the judicial lien holder argued it was entitled to an unsecured claim to the extent the lien was avoided.

The Court held that the Bankruptcy Code does not prohibit the use of §522(f)(1) in a subsequent bankruptcy filing. The Code is replete with examples where action or inaction in prior bankruptcy cases is given consequence. Indeed, Chapter 5 of Title 11 is expressly made applicable to Chapter 13 cases without limitation, accordingly, the court would allow the debtors to avoid the judicial lien on their property as the value of the prior liens on the property exceeded the value of the property. The court also ruled that because of the discharge of the debt in their Chapter 7 case, the lender was not entitled to an unsecured claim in the debtors’ Chapter 13 case. lien.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com.

Chapter 13 Plan Can Require Creditor To Send Monthly Statements

By: Craig W. Stewart, Esq.

Debtors who file bankruptcy oftentimes complain about the fact that after they file their mortgage companies or car finance lenders stop sending monthly billing statements for fear of violating the automatic stay provisions of the Bankruptcy Code.

Now, under a recent case out of Massachusetts, In Re Penny L and Jason A Sperry, 2016 WL 7167869 (Bankr. D. Mass. 12/8/16), these lenders must send the statements. In this case. the Chapter 13 debtors proposed a cure and maintain plan with specific language stating that the creditor (here a mortgage company) shall send the debtors monthly mortgage payments consistent with its prepetition practice. Of course, HSBC, the lender, replied that it could not comply internally and logistics limited it from complying.

The Court held that the Bankruptcy Code does not prohibit and arguably permits sending post-petition statements under section 1322(b)(11). In Maryland there is a Local Rule that allows secured creditors to send monthly statements to debtors. Accordingly, there is no excuse for these lenders for not sending monthly statements to their Chapter 13 clients.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com

Debtor Did Not Loose Tenants by the Entirety Exemption After Spouse Died

By Laura Margulies, Esq.

In the recent Maryland bankruptcy case of In re Buckley, 2016 WL 7480233 (Bankr. D. Md 12.29.16), the court denied the trustee’s objection to the debtor’s tenants by the entireties exemption which the trustee had filed after the death of the debtor’s husband. In the Buckley case, the debtor and her non-filing husband owned their house free and clear of liens. The debtor filed a Chapter 7 case in June 2016 and had exempted the full equity in the house using the tenants by the entireties exemption. Shortly after she filed, in July of 2016, her husband passed away. The trustee filed an objection to the exemption arguing that the husband’s death extinguished the tenants by the entireties exemption. The court disagreed with the trustee and held that the rights of individual creditors against property held by the debtor by the entireties are fixed as of the petition date and the Bankruptcy Code does not provide for those rights to expand or contract upon the post-petition death of the non-filing spouse. Accordingly, the debtor was entitled to the entireties exemption.

This result does not apply to a situation where the parties divorce post-petition. If a debtor owns property with his or her spouse and claims tenants by the entireties exemption to protect his or her equity in the house, but then gets a limited or final divorce within 6 months of the filing of the case, the tenants by the entireties exemption no longer applies, see Bankruptcy Code Section 541(a)(5)(B). Should this happen, the court would sustain an objection by the trustee to the use of the entireties exemption.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com .

Debtors Do Not Need to Pay Interest to Unsecured Creditors

By Laura Margulies, Esq.

In the recent case of In re Egger, 2016 wL 6892747 (Bankr. W.D. Wash. 11/22/16), the court held that the debtors’ Chapter 13 Plan did not need to provide for interest to be paid to their unsecured creditors to satisfy Section 1325(b)(1)(A). In the Egger case, the trustee objected to the debtors’ plan because it was for less than 60 months and while it paid the unsecured creditors 100% of their claims, it did not provide for interest on those claims. The Chapter 13 trustee maintained that since the debtors’ budget showed they can afford to pay interest on the claims, they should be required to do so under Section 1325(b)(1)(A). The court overruled the trustee’s objection and found that Section 1325(b)(1)(A) does not require payment of interest on unsecured claims. Accordingly, the debtors’ plan was able to proceed to confirmation.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com.

Trustee Can Use IRS’s 10 Year Collection Statue to Avoid a Fraudulent Transfer

By Laura J. Margulies

Usually, a trustee seeks to avoid fraudulent conveyances that occur within the state’s statute of limitations, which in Maryland is three years. However, in the recent case of In re Kipnis, 555 B.R. 877 (Bankr. S.D. Fla. 2016), the bankruptcy court allowed a trustee to pursue a fraudulent conveyance action using the IRS’s 10-year collection statue of 26 U.S.C. §6502. In this case, the trustee sought to avoid transfers the debtor made in 2005 after the IRS determined that the debtor owed it in excess of $1 million dollars. The debtor, who filed for bankruptcy in January of 2014, moved to dismiss the complaint on the basis that the alleged fraudulent transfer occurred more than four years prepetition, which is beyond Florida’s statute of limitations. The court ruled that the trustee was not limited by the state’s statute of limitations. Section 544(b) of the Bankruptcy Code allows a trustee to avoid any transfer of an interest of the debtor in property that is voidable under applicable law under section 502 of the Code. Section 6901 of the Internal Revenue Code allows the IRS to pursue avoidance actions against transferees of the taxpayer’s property. Although the IRS must prove the elements of a fraudulent transfer under state law, the statute of limitations to file the action is governed by federal law. Under §6502, the IRS has ten years to collect a tax debt. Because §544(b) allows a trustee to step into the shoes of the IRS, he can avoid the transfer for the benefit of the tax debt, which is an allowable unsecured claim in the debtor’s bankruptcy case.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com.