Bankruptcy Law – ALL

All blogs and articles related to Bankruptcy law on TollefsenLaw.com

Bankruptcy Practice, filling and bankruptcy litigation

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Note this important disclaimer and warning: These materials are no substitute for legal advice. The articles may be out of date, be incomplete, contain errors, or not be relevant to the fact situation you are researching. Do not rely on the information found on this website to make a legal or business decision. When Things Get Complicated - Bankruptcy?

Litigation Tactic to Delay

Bankruptcy cannot be used merely as a litigation tactic to delay or avoid a state court order. Filing bankruptcy used as a strategy to delay a state court order can be a bad-faith filing. If the creditors will recover more money outside of bankruptcy court than through a liquidation, the court may dismiss the bankruptcy petition. Owens and her husband were divorced but litigation continued over the family home. The Washington State Superior Court ruled that the family home was a combination of community and separate property because some of the funds Owens used in purchasing the home were community property. The court ordered the home sold and the proceeds divided equally between Owens and her former husband. Owens filed for Chapter 11 bankruptcy, claiming the family home as her only significant asset. Her ex-husband filed a motion to dismiss Owens’ bankruptcy case as a bad faith filing under 11 U.S.C. § 1112(b). The bankruptcy court granted the motion, ruling that the bankruptcy was filed in bad faith as a litigation tactic intended to delay the sale. In its decision, the bankruptcy court noted that Owens had an annual earning capacity between $150,000 and $800,000 and that creditors would recover more if the petition were not converted to Chapter 7. In a recent case, the BAP affirmed the bankruptcy court. The BAP cited with approval Rollex Corp. v. Associated Materials, Inc. (In re Superior Siding & Window, Inc.), 14 F.3d 240, 243 (4th Cir.1994) which held that when deciding between dismissal and conversion under 11 U.S.C. § 1112(b), “the court must consider the interests of all of the...

Types of Bankruptcy Filings

The most common type of bankruptcy filings are: Chapter 7 Chapter 7 is designed for individuals, corporations and partnerships in financial difficulty who do not have the ability to pay their existing debts. Under chapter 7 a trustee takes possession of all the debtor’s non-exempt property, liquidates it for cash and uses the proceeds to pay creditors according to priorities of the Bankruptcy Code. In Washington, the debtor may elect all the state exemptions or alternatively all the federal exemptions. In Oregon, only state exemptions may be used. Chapter 9 Chapter 9 is designed to allow a municipality to continue operating while it works out a repayment plan for its creditors. A municipal unit cannot liquidate its assets to satisfy its debts. Chapter 11 Chapter 11 allows a business to reorganize and restructure its finances so that it may continue to operate, provide employees with jobs, pay its creditors, and produce a return for its owners. While chapter 11 is primarily designed for a business it is also available to individuals. In a chapter 11 case the debtor proposes a plan to creditors which, if accepted by the creditors and approved by the court, will allow a debtor to reorganize. A debtor may also propose a plan of liquidation and cease doing business. Chapter 12 Chapter 12 allows family farmers and fishermen with financial difficulties to repay debts over a period of time from future earnings. In many ways it is similar to a chapter 13 case. The eligibility requirements are restrictive, limiting its use to those whose income arises primarily from a family-owned farm. Chapter 13 Chapter 13...

Bankruptcy FAQ

Tollefsen Law PLLC provides bankruptcy services primarily to businesses and business owners. Many of the same questions apply to consumer as well as business bankruptcies. This bankruptcy FAQ list was generated by our client’s questions. Frequently Asked Questions about Bankruptcy   How long does a bankruptcy remain on my credit report? The fact that an individual filed a bankruptcy can remain on the credit report no longer than 10 years under provisions of the Fair Credit Reporting Act. If a chapter 13 bankruptcy is successfully completed, the credit reporting industry retains the information for seven years rather than the ten years allowed by law. What property may I keep after file for bankruptcy? You are allowed to keep certain property under the provisions of federal and state law exemptions to protect your property in bankruptcy. Most people do not exceed these exemptions and do not lose any of their property. Those who own property worth more than available exemptions should consider a Chapter 13 bankruptcy. Businesses that have ongoing businesses can protect their assets in Chapter 13 (asset value limitation) or Chapter 11. Can I continue making monthly payments on assets like a house or vehicle after I file for bankruptcy and keep them? Yes – As long as you catch up the arrearages and stay current. If you cannot immediately make your accounts current, Chapter 13 may be the solution. A Chapter 13 bankruptcy will allow you to keep the property if you make all future monthly payments and pay a little extra each month to cure your arrearage. How difficult is it to re-establish credit after receiving...

Disavowing an Inheritance

Disavowing an inheritance not a fraudulent conveyance Fraudulent Conveyance in Bankruptcy  Gaughan v. Edward Dittlof Revocable Trust (In re Costas), 555 F.3d 790, 2009 U.S. App. LEXIS 2260, Bankr. L. Rep. (CCH) P81,413, 61 Collier Bankr. Cas. 2d (MB) 52 (9th Cir. 2009) The Bankruptcy Code’s federal fraudulent conveyance provision allows a trustee to avoid “any transfer … of an interest of the debtor in property” within a two year reach back period where the transfer was actually or constructively fraudulent. 11 U.S.C. § 548(a)(1). Debtor was left an inheritance which he relinquished under Arizona law. He then filed bankruptcy under Chapter 7.  The Chapter 7 trustee, sought to avoid Costas’ disclaimer of the Trust property under 11 U.S.C. § 548. Bankruptcy courts have ruled in favor of the debtor in this situation but that ruling was thrown into doubt by Drye v. United States, 528 U.S. 49 (1999). In Drye, a tax debtor inherited his mother’s estate after the IRS had obtained a tax lien on all his “property and rights to property.” Relying on Arkansas’ relation-back disclaimer rule, Drye disclaimed his inheritance and argued that he had no property to which the IRS lien could attach. The Supreme Court, however, rejected Drye’s theory and held that the tax lien attached to disclaimed property despite state law relation-back rules. After discussing the breadth of federal tax lien law, the Court described its analysis: “We look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state-delineated rights qualify as ‘property’...

Exceptions to Discharge

The statute relating to exceptions to discharge clearly provides limits to an order of discharge from a bankruptcy court. This means the claim survives even if an adversary proceeding is not brought in bankruptcy court. § 523 – Exceptions to Discharge in Bankruptcy (a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— (1) for a tax or a customs duty— (A) of the kind and for the periods specified in section 507 (a)(2) or 507 (a)(8) of this title, whether or not a claim for such tax was filed or allowed; (B) with respect to which a return, if required— (i) was not filed; or (ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or (C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by— (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; (B) use of a statement in writing— (i) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or...

Debtor Duties

Section 521 Defines the Debtor Duties in Bankruptcy Ignoring debtor duties can be a grounds for creditor litigation. It is important that debtors review this statute. (a) The debtor shall— (1) file— (A) a list of creditors; and (B) unless the court orders otherwise— (i) a schedule of assets and liabilities; (ii) a schedule of current income and current expenditures; (iii) a statement of the debtor’s financial affairs and, if section 342 (b) applies, a certificate— (I) of an attorney whose name is indicated on the petition as the attorney for the debtor, or a bankruptcy petition preparer signing the petition under section 110 (b)(1), indicating that such attorney or the bankruptcy petition preparer delivered to the debtor the notice required by section 342 (b); or (II) if no attorney is so indicated, and no bankruptcy petition preparer signed the petition, of the debtor that such notice was received and read by the debtor; (iv) copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor; (v) a statement of the amount of monthly net income, itemized to show how the amount is calculated; and (vi) a statement disclosing any reasonably anticipated increase in income or expenditures over the 12-month period following the date of the filing of the petition; (2) if an individual debtor’s schedule of assets and liabilities includes debts which are secured by property of the estate— (A) within thirty days after the date of the filing of a petition under chapter 7 of this title...

Bankruptcy Litigation

Bankruptcy litigation can include routine commercial matters, disputes over title and security, as well as attempts to prevent discharge. Even though the nondischarged claims may be pursued in other courts, it is often helpful to have bankruptcy judges who know bankruptcy law make the decision. Tollefsen law has years of experience in bankruptcy litigation. Preventing Discharge for Fraud If the perpetrator or participant in a fraud is pursued civilly, he or she often files for protection in the bankruptcy courts. If Chapter 13 is available, intentional fraud cannot be discharged but other types of fraudulent acts can be. Often the victim wants to teach the perpetrator a lesson and appears in the bankruptcy court even though the chance of recovery is small. The victim hopes either to eject the perpetrator from the protection of the bankruptcy court protection, obtain a exception from discharge, or win a nondischargeable judgment. There are several possible courses of action against the perpetrator in bankruptcy but often there is little guarantee of success. “Success” usually means obtaining a nondischargeable judgment which can last a total of 20 years in the states of Oregon and Washington. The victim has 20 years to keep track of the perpetrator and attempt to collect the judgment. Collection costs can be expensive and rarely are recovered from the perpetrator. Under 523(a)(2) the victim must prove that the perpetrator committed the fraud “intentionally” with knowledge that his conduct was fraudulent.  523(a)(4) disallows certain fiduciaries from discharging the debt. In securities fraud cases, the perpetrator generally claims to have been also fooled by the fraud and points to the fact that...

Bankruptcy Fees Schedule

Bankruptcy Fees Charged by Tollefsen Law Tollefsen Law focuses on providing excellent service and reasonable fees. Even if you are not in financial distress, it is important to plan you financial affairs with an understanding of legal and financial risks. If you have financial problems, it is important that you plan before you have no room to maneuver. TL’s financial planning includes a complete evaluation of your financial situation from a legal risk perspective. You will have the opportunity to understand how to protect your assets to the extent allowed by law as well as understand what would happen to your assets if your filed bankruptcy. Hourly Fees: Most bankruptcy work (outside of Chapter 11 cases and adversary proceedings) is charged on a fixed fee basis. TL rates range from $90 to $400 per hour for legal services from paralegals and attorneys. Email and No “Free” Consultation Frequently, TL is asked to answer a quick question by email. The difficulty is that a lawyer giving advice, whether through email or otherwise, has formed an attorney-client relationship with the person receiving the advice. The attorney needs to make sure he or she has no conflicts of interest and must have a record of the client and the advice. There is also an expectation by some potential bankruptcy  clients that lawyers will answer their questions in free consultations. Most bankruptcy questions require intimate knowledge of the client’s affairs and may involve unsettled areas of the law. It is not reasonable to expect a law firm to open a file, obtain the necessary facts, and then give free advice. Recognizing the expectation...

Unscheduled Claims and Property

 The United States Constitution gives the federal government exclusive jurisdiction over bankruptcy issues. The bankruptcy code provides that all of the debtor’s property transfers to the trustee when a bankruptcy petition is filed. The debtor has a duty to list all his property on the appropriate schedule including claims. Some debtors fail to list claims (like a pending personal injury case). State law governs substantive issues like ownership of property and legitimacy of claims. Bankruptcy courts generally apply state law to determine ownership. Unscheduled Claims and Property in Bankruptcy In most bankruptcies, creditors who have been omitted can file an claim and correct the error. The problem arises in Chapter 13 filings when debtors omit claims, often to qualify within the jurisdictional dollar limit for unsecured claims (§109(e)). Unless the creditor can prove intentional fraud, the strategy used to obtain a nondischargeable judgment is to attempt to increase claims above the§109(e) jurisdictional limit, forcing the debtor out of bankruptcy or into Chapter 7 or 11 where all objections to discharge can be used. The problem with this strategy in the 9th Circuit is that the creditor is limited to the claims listed when the debtor filed the Chapter 13 schedules, unless the creditor can prove bad faith. This has led to the practice by some debtors to intentionally omit some debts knowing they can just claim they made a innocent mistake if caught. The controlling case is In re Scovis (249 F.3d 975 (2001). In re Scovis was decided primarily on two considerations: 1) the language of 11 U.S.C. 109(e) (“on the date of the filing of the petition”...