Michigan Bankruptcy Blog

Sixth Circuit Reverses Bankruptcy Court Decision to Disallow Chapter 7 Debtor's Amendment to Exemptions

While Chapter 7 bankruptcy offers individuals a fresh start and discharge from many debts, it doesn't come without a price. Property of the debtor becomes property of the estate and is used to pay creditors.

But not all of it. Section 522 of the Bankruptcy Code lists exemptions that debtors can use to exempt property - up to a certain dollar amount in value - from the estate. The purpose of exemptions is to ensure that the individual debtor is able to maintain a basic standard of living post-bankruptcy. But because there are very few assets available for creditor recovery beyond exempt property in many bankruptcy cases, the propriety of a debtor's claimed exemptions is an issue that is oft-litigated.

Such was the case in an appeal to the U.S. Court of Appeals for the Sixth Circuit (the "Sixth Circuit") arising from a Chapter 7 bankruptcy case that was filed in the U.S. Bankruptcy Court for the Eastern District of Michigan. Read More ›

Categories: 6th Circuit Court of Appeals, Chapter 7

Sixth Circuit Rules that In Pari Delicto May Not Bar Trustee’s Conversion Claim

From Ponzi schemes to fraudulent transfers, many Chapter 7 bankruptcy cases involve allegations of wrongdoing. Bankruptcy trustees, who stand in the shoes of the bankrupt entity in asserting claims, often bring actions against third parties alleging participation in, and orchestration of, fraudulent schemes. Because the alleged wrongdoing many times involves actions or transactions in which the debtor took part, defendants in such lawsuits frequently raise a defense based on the doctrine of in pari delictoRead More ›

Categories: 6th Circuit Court of Appeals, Chapter 7, Western District of Michigan

Sixth Circuit Sorts Out Bankruptcy Slugfest Between Friends

It has often been said that you should never do business with friends or family. A bankruptcy court decision that was recently affirmed by the U.S. Court of Appeals for the Sixth Circuit is further evidence of this proposition.  Read More ›

Categories: 6th Circuit Court of Appeals, Chapter 11

Divorce and Bankruptcy: The Legal Intersection of Two of Life's Most Challenging Moments

Two of the most difficult and stressful legal processes that individuals participate in are divorce and bankruptcy proceedings. Unfortunately, as lives are upturned and finances stretched, one often closely follows the other.

Such was the case in a recent case in the United States Bankruptcy Court for the Western District of Michigan.

A husband and wife (both Michigan residents) used equity from property owned by the wife - prior to and during the marriage - to finance a roofing repair business started by the husband in Florida. To accomplish this, the wife quit-claimed her interest in the property to herself and the husband. They then refinanced the property and borrowed $200,000 from the lender. The loan funds were used to pay off the wife's original mortgage on the property ($120,000), pay down the husband's credit card debt and fund the new business.

They then agreed that the husband would make monthly mortgage payments on the new loan until the payments equaled the amount of the original mortgage - $120,000. They subsequently refinanced the loan with two new lenders. Shortly thereafter the husband's business failed, and the husband and wife started divorce proceedings in 2011. Read More ›

Categories: Chapter 7, Western District of Michigan

Can Individuals “Strip Off” Second Mortgages on Underwater Homes in Chapter 7 Bankruptcy? The Supreme Court to Decide

On Monday, November 17, 2014, the U.S. Supreme Court agreed to hear two bankruptcy-related cases that involve issues commonly faced by banks and homeowners with underwater mortgages in Chapter 7 cases. The cases of Bank of America v. Caulkett and Bank of America v. Toledo-Cardona come from Florida, where many homeowners own homes with mortgages that exceed equity value due to the recent housing crisis. Bank of America holds the second mortgage in both cases.  Read More ›

Categories: Chapter 7, U.S. Supreme Court

Foreclosure Without Closure: Sixth Circuit Analyzes Claims Asserted by Borrower Following State Court Foreclosure Proceedings

The financial and housing crisis that began in 2008 led to a huge wave of foreclosures and foreclosure-related litigation. While foreclosure is rooted in state law, the initiation of a foreclosure proceeding by a lender often leads to federal bankruptcy proceedings initiated by a borrower, giving rise to interesting legal issues involving the interplay of state foreclosure law and federal bankruptcy law. Recently, the U.S. Court of Appeals for the Sixth Circuit (the "Sixth Circuit") considered the implications of a foreclosure on a residence following the borrowers' Chapter 7 bankruptcy proceeding.[1] Read More ›

Categories: 6th Circuit Court of Appeals, Chapter 7, Eastern District of Michigan

Timing is Everything: Sixth Circuit Reverses Bankruptcy Court and Rules that Lawsuit Settlement is Not Property of the Debtor's Estate

When someone files for bankruptcy, an estate is created that consists of, among other things, any and all assets owned by, or to which the debtor filing the bankruptcy case has a right to or interest in. This includes tangible things such as real estate, vehicles, money, clothing, and jewelry, as well as rights to property such as litigation claims.

In a Chapter 7 case, all assets belong to the trustee on the date a case is filed unless an exemption is claimed, and the trustee gets to keep, sell or otherwise administer assets for the benefit of creditors.

When it comes to determining "property of the estate," timing is important. Generally speaking, a debtor gets to retain property acquired after the bankruptcy filing occurs. Read More ›

Categories: 6th Circuit Court of Appeals, Chapter 7

Are Student Loans Dischargeable in Bankruptcy? Only if You Can Prove Undue Hardship

Many students don't realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. It is only after getting into the "real world" that they realize that living expenses are higher, and after tax income is lower, than they anticipated, making student loan debt repayment difficult if not impossible.

Some look to bankruptcy for relief and a fresh start. But all debt is not treated equally in bankruptcy. Student loan debt is not the same as, for instance, credit card debt. It is not dischargeable pursuant to Bankruptcy Code section 523(a)(8) except in one narrow circumstance. Specifically, to discharge student loan debt, a debtor must show undue hardship - a very high bar. Read More ›

Categories: Chapter 7, Western District of Michigan

Sixth Circuit BAP Rules that "Chapter 20" Debtor May Strip Off Valueless Liens

Lien stripping is a process that involves eliminating junior liens (such as a second mortgage) through the bankruptcy process. In a recent appeal to a Sixth Circuit Bankruptcy Appellate Panel ("BAP"), the BAP overturned a bankruptcy court's denial of a Chapter 13 debtor's motion to avoid the lien of an inferior mortgage lien holder. Read More ›

Categories: Chapter 13, Chapter 7

Supreme Court Applies its Stern Ruling and Issues a Narrow Decision Holding that Bankruptcy Courts Can Hear, But not Decide, “Stern Claims”

In 2011, the U.S. Supreme Court (the “Court”) issued its noteworthy decision in Stern v. Marshall,1 in which it held that bankruptcy courts lack the constitutional authority to enter a final judgment on a state law counterclaim that is not related to the bankruptcy proceeding. Since Stern, a number of cases have been published - at both the bankruptcy court and court of appeals levels - where Stern jurisdictional issues have been raised and adjudicated. We recently wrote about one on this blog.

The Court, itself, had a chance to consider the implications of Stern in the case of Executive Benefits Ins. Agency v. Arkinson.2 In a unanimous decision written by Justice Clarence Thomas, the Court ruled that where Article III of the U.S. Constitution does not permit a bankruptcy court to enter final judgment on a bankruptcy related claim, the bankruptcy court may issue proposed findings of fact and conclusions of law with respect to the claim, to be reviewed de novo by a federal district court.

Read More ›

Categories: U.S. Supreme Court