Category Archives: Blog

DEBTORS MAY DEDUCT 401(k) PAYMENTS STARTED POST-PETITION

By: Craig W. Stewart

The above-median income Chapter 13 debtors began taking 401(k) deductions post-
Petition and took deductions on the Means Test for those contributions to husband’s retirement
Plan. The Chapter 13 Trustee objected and the Court noted that much of the confusion in this
Case stemmed from how the debtors should calculate their projected disposable income.
Section 541(b)(7) of the Code resulted in different interpretations by the Debtor and the Trustee.

A 5th Circuit Bankruptcy Court overruled the Chapter 13 Trustee’s objection to Confirmation based on their deduction of voluntary 401(k) payments that began post-petition. It found that this comports with the notion of the debtors getting a fresh start and stated that if any time the debtors ceased the contribution, the money would be become disposable income. This remains a hot topic in the 4th Circuit and feel free to contact our office if you have this issue orknow anyone who may be in this situation in their own case.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. 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.

EX-SPOUSE’S MOTIONS TO MODIFY DIVORCE JUDGMENT VIOLATED STAY

By: Craig W. Stewart
Debtor is jointly liable on a promissory note with ex-spouse and files a Chapter 13 plan
proposing to discharge $3,164.00 as a DSO and lists the note as a general unsecured debt. Ex
wife objects to confirmation of the plan and nearly a year after confirmation of debtor’s plan,
files motions in state court to force the debtor to contribute to payment of marital debt. Debtor
files an Adversary Proceeding and ex spouse withdraws and modifies her motions.

The Court held that the state court motions violated the automatic stay and that withdraw of the motion(s) may have reduced damages, but did not undo the stay violation. “Creditors should not be permitted to use the spousal support modification exception for the sole purpose of recharacterizing an otherwise dischargeable property division as a nondischargeable domestic support obligation.” The Court imposed damages of $3,000.00 for attorney’s fees in defending the state court motions.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. 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’s Attorney Must Reimburse Trustee For 707(b) Motion

By: Craig W. Stewart

A Chapter 7 Trustee files a motion to dismiss debtor’s case after ascertaining debtor had
disposable income of $1,636.21 despite debtor’s Schedule J reflecting a deficit of $239.06. The debtor did not oppose the dismissal and the bankruptcy dismissed the case. The only question remaining was whether the debtor’s attorney sufficiently conducted due diligence, and if not whether he should be required to reimburse the Trustee for fees and costs.

The Court held that a reasonable investigation requires more than just relying on the information provided by the debtor. “The attorney must independently verify publicly available facts to determine whether the client’s representations are objectively reasonable … by asking questions and obtaining additional documents or by some other means.” The attorney was required to reimburse the Trustee because he did not perform a satisfactory investigation on his own prior to the filing of the case.

The above case shall warn debtor’s attorneys in their initial and follow-up consultations with clients. The Trustee will be able to recover fees and costs if attention to detail is not part and parcel to each and every client’s case.

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. Please call us for a free consultation today. Laura Margulies is a principal and Craig Stewart is also a principal in the law firm of Laura Margulies & Associates, LLC. 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.

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