The hardest part about bankruptcy is filling out the forms correctly. Listing your assets and assigning reasonable values; claiming the appropriate exemptions; accurately detailing your income and expenses; and navigating the means test are only a few of the complex issues that debtors must resolve in their bankruptcy cases. The good news is that debtors don’t need to justify their bankruptcy filing; if the schedules are accurate and complete, and if the debtor cooperates with the trustee, then the relief will be awarded and the debts will be discharged.

Creditors and other parties in interest have 60 days after the debtor meets with the trustee to object to the bankruptcy discharge. If there are no objections (and this is a strict deadline) the bankruptcy court will promptly enter the debtor’s discharge. There will be no inquiry as to whether the debtor is current or not on their bills.

The more important question is not whether a client qualifies for bankruptcy – because they almost always will – but whether they should file, or instead struggle with paying their bills. This is a harder question and addresses such different factors as debt load, asset liquidity, employment status, existence of liens, and many other elements of a person’s financial life. Of course, with so many qualified bankruptcy lawyers offering free consultations that provide meaningful information, there is no reason to delay contacting a Maryland bankruptcy lawyer to find out all of your legal options. You may save yourself hundreds of thousands of dollars.

The post Can I File a Maryland Bankruptcy if I’m Current on my Bills? appeared first on Baltimore Bankruptcy Lawyer.

When my clients ask, “Why is the trustee looking so closely at my bankruptcy case?” I tell them about trustee appointments.  Chapter 7 trustees are private attorneys appointed to a panel by the Department of Justice.  Trustees are paid only $65.00 per case according to statute and that is the full payment for approximately 95 percent of their cases.  By looking closely at bankruptcy schedules, in about 5 percent of their cases, trustees are able to identify assets.

• The trustee tries to locate assets which can be liquidated to pay your creditors.
• When trustees succeed in finding assets to pay creditors, they get paid more than the $65.00.
• Trustees can then hire their own law firm and be paid $300.00 to $500.00 an hour.  Besides the hourly billing rate, the trustee also receives a percentage of the amount distributed to creditors.

Trustees cannot afford to take much time to determine whether they’re likely to identify assets for your creditors.  If the trustee decides there are not likely to be worthwhile assets, they’re going to close the case, file a “No Distribution” report and conclude that the bankruptcy is a no-asset case.  That’s a great outcome for a Chapter 7 debtor.

The bankruptcy trustee is going to keep the case open and analyze whether or not there actually are assets.  If the trustee determines there are assets to pay creditors, the trustee will have a payday worth far more than the $65.00 that they’ll normally get from a case.  For more information, read Why Do Maryland Trustees Scrutinize Bankruptcy Cases So Closely?

If you have a question about whether or not the trustee is going to take a close look at your case, please pick up the phone and call me at 410-484-9000.  I’d love to hear from you.

The post Why Is Trustee Scrutinizing Your Maryland Bankruptcy Case? appeared first on Baltimore Bankruptcy Lawyer.

Unfortunately for the doctor, getting out of Chapter 11 is not nearly so easy as getting in. Oddly similar to getting a divorce in many states, a bankruptcy judge needs to find that “cause” exists to dismiss a Chapter 11 case. Such cause may include a debtor’s failure to file necessary operating reports, inability to confirm a plan of reorganization or most commonly, continued loss from operations to the detriment of creditors.

From a casual view, it may seem easy for debtors who want to get out of Chapter 11 to create the environment that would justify the finding of such “cause”, but there is a severe penalty for guessing wrong. If it appears that dismissal is not in the best interest of creditors a bankruptcy judge may, instead of dismissing, choose to convert the case to Chapter 7. Under the Bankruptcy Code, a judge has the power to make that choice even if no one has filed a motion asking for the case to be converted. Once conversion to Chapter 7 happens a trustee is appointed to analyze assets for liquidation and investigate litigation opportunities. The dire result: instead of escaping the confines of bankruptcy the debtor loses control of everything.

A debtor’s motion to dismiss is more likely to succeed if a primary goal for filing the case has occurred and there doesn’t seem to be much point in the bankruptcy court maintaining jurisdiction. This could happen if a significant asset has been sold, or a lease default cured, or if the reorganization has failed and a secured creditor has forced the debtor to terminate operations. In these scenarios, a bankruptcy court will dismiss a case if she decides that to do so is in the best interest of creditors.

For Dr. Brown, the prospect of a dismissal is highly doubtful. His case is still in the early stages and there appear to be significant assets that should be analyzed for the benefit of his substantial body of creditors. He should expect that the bankruptcy judge will want to take a very close look at his second thoughts about bankruptcy before letting him loose with millions of dollars in unpaid creditors.

What do you think? Should Dr. Brown be allowed to dismiss his case? Tell us your thoughts in the comments section.

The post Bankruptcy Buyer’s Remorse: When Debtors Want To Dismiss Their Own Chapter 11 Case appeared first on Baltimore Bankruptcy Lawyer.

The rationale behind these decisions (notwithstanding a fairly convoluted statutory construction) is understandable and even sympathetic: funding 401(k) payments during a repayment plan takes money out of creditors’ pockets and puts it into debtors’. Of course, this analysis ignores the reality that the 401(k) payment is an exclusion of a debtor’s pay that reduces their tax bill. Also, many employers match a portion of the 401(k) contribution, and this money is also lost to the debtor. Thus Uncle Sam and the debtors’ employers are enriched by the rule, with no equivalent benefit to creditors.

Especially troubling is the difference between Chapter 13 and Chapter 7. Debtors who qualify for Chapter 7 may take all the payroll deductions they want, even though creditors are enjoying no return to mitigate their losses. Chapter 13 debtors, however, are denied payroll deductions for the life of their repayment plan, between 3-5 years, even though creditors are receiving some compensation.

As courts grow more comfortable with BAPCPA the walls are closing in. Chapter 13 used to be thought of as a voluntary repayment mechanism, but with the “presumption of abuse” shutting the Chapter 7 door Chapter 13 becomes the only real choice for many debtors to get any bankruptcy relief. Congress and the Courts may insist that the choice is “Chapter 7 or no Chapter 7” but the truth is more like “Chapter 13 or no bankruptcy.”

When debtors have no options, depriving them of 5 years of 401(k) deposits and income tax deductions while their Chapter 7 counterparts enjoy both makes no rational sense. When those who qualify for Chapter 7 can make payroll contributions yet those who don’t cannot, a classification scheme is created that imposes real hardship.

In other words, can BAPCPA survive an equal protection challenge?

The post Chapter 13 Denial Of Payroll Deductions May Be Unconstitutional appeared first on Baltimore Bankruptcy Lawyer.

The key to taking the anxiety out of this meeting is preparation. Knowing where you’re going and confirming the date, time and place with your attorney may seem like common sense, but many debtors would be surprised that they need to go through metal detectors and airport-style security if the meeting is held in a federal courthouse. And few debtors would know intuitively that they need to bring both a photo ID and their social security card.

Of course, reviewing the bankruptcy papers a day or two beforehand will help the debtors identify any changes they need to make to the official record, which may become important if there are significant errors or omissions in the papers they signed and that were filed with the Court. Testifying under penalty of perjury can be a stressful ordeal, but following the 7 steps in this article can help the meeting go much smoother.

The post Ready For Your Closeup? Steps To Prepare For Meeting The Trustee appeared first on Baltimore Bankruptcy Lawyer.

Chapter 11 is an extremely powerful and flexible procedure that allows a debtor to remain in control of his assets while he attempts to reorganize. One of the critical philosophies behind Chapter 11 is the idea that assets retain their highest value in the hands of the person or company who bought or developed them. Maintaining this “going concern” value is thought to be in the best interest of the debtor and its creditors.

Like most  of the other powerful tools available under the bankruptcy laws, Chapter 11 is a privilege and not a right. Debtors operating under Chapter 11 have a fiduciary duty to protect their creditors. While debtors are permitted to operate normally with minimal court supervision, transactions outside of the ordinary course of business must be approved by the bankruptcy judge.

Schacter then must’ve known then that he was going to  self-destruct when, according to Blastr.com, he tried to sell the Metropolis poster on an auction site without permission from the bankruptcy court. His asking price? $850,000 (he had apparently listed the value of the poster at $250,000 on his bankruptcy schedules).  We can only guess what would have happened to this money had Schacter succeeded in this scheme.

As Blastr.com reports, the consequences for Schacter’s veiled subterfuge were predictable: he was swiftly removed from his Chapter 11 power and the case was converted to a liquidation under Chapter 7 of the bankruptcy code. Now, a trustee will attempt to sell the Metropolis poster which is expected to fetch over $1 million. The creditors will win, but Schacter may find himself scrambling to hang onto his discharge after his Chapter 11 meltdown.

The post Owner of World’s Most Valuable Poster Suffers Bankruptcy Meltdown appeared first on Baltimore Bankruptcy Lawyer.

In Chapter 13 the debtor could strip off that HELOC as described in this video. But in Chapter 7 most courts say no. Why? Because the US Supreme Court says so. For more details, see this article. The Supreme Court case that has caused this hardship (Dewsnup v. Timm for the legally minded) stems from 1992, more than 15 years before the current real estate and foreclosure crisis that has caused the loss of trillions of dollars of value in the residential home market.

This result makes no sense. Why should other unsecured creditors get a windfall by receiving coerced payments in Chapter 13 just because the debtors have a junior mortgage that is completely unsecured? The bankruptcy code is clear: “to the extent that a lien secures a claim against the debtor that is not an allowed secured claim (i.e., completely underwater) such lien is void.”

This result is especially wrong in light of the recent Atty. Gen. nationwide mortgage settlement which followed years of abusive foreclosure practices by the major mortgage servicers. Part of the settlement, which will be implemented in the months and years to come, is that mortgage companies need to adjust to the collapsed real estate market by writing down the principal on their loans when the property value does not support the mortgage.

The bankruptcy world  should adapt to these realities and recognize that completely unsecured junior mortgages need to be stripped off in chapter 7 so that homeowners will be able to realize the appreciation in their properties and not simply pay rent or its equivalent to mortgage holders until the time comes that they are ready to abandon the home. Congress needs to amend the bankruptcy code to make clear that “void” means “void” and give homeowners real relief in chapter 7.

The post Lien Stripping, Congress and the Supremes: The Glacier or the Snail? appeared first on Baltimore Bankruptcy Lawyer.

Frequently, however, the creditors are not circling overhead, just making you uncomfortable. Or else you may have decided to let go of a certain financial lifestyle and you want to finally move on with your life. It takes a lot of soul-searching and sleepless nights  to get to that point so the desire to put the painful past behind is understandable. However, if one of these situations apply to you you may do much better to plan carefully, wait out the storm and file on your own terms:

•  You owe significant taxes.  Income taxes are generally nondischargeable in bankruptcy but there are critical exceptions as you can see in this video. You may have to wait a year or 2 or 3 so that taxes may become dischargeable. If you can hang on during the wait the ability to get rid of the IRS once and for all may completely change your life.
• You have too many assets. In Maryland bankruptcies individual debtors may claim exemptions and keep approximately $21,000 in the equity in their home, $1,000 in household goods, $5,000 in tools of the trade and approximately $11,000 in everything else. (IRAs, 401(k)s, life insurance policies, cash recovery on account of personal injuries are not subject to any limitations).If your assets are worth substantially more than this you may have to take the time to  spend down excess cash or transfer property outright. If that happens you may have to wait up to 3 years to file that bankruptcy case. If you plan properly it will be worth it.
• You have unnecessarily transferred property–cash, stock, or vehicle–to a trusted friend or family member to keep it out of the hands of creditors. This frequently happens when individuals are afraid that the creditors will seize their property but are not aware that they are legally entitled to keep it. If that happens you will have to wait at least a year before filing for Chapter 7 or else you will not get a discharge in bankruptcy.

There are ways to hang on while you wait for the time to pass and be ready to file. If there’s a reason to rush into bankruptcy, you should get it done without procrastinating. But just as frequently, the better course is to calmly survey the landscape and file the case when you and your lawyer have considered all the possibilities.

The post Plan Your Bankruptcy Carefully: 3 Reasons To Wait Before Filing appeared first on Baltimore Bankruptcy Lawyer.