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Showing 11 posts from 2010.

Eastern District: Business Debtors in Chapter 7 Must Tighten Their Belts, Too

In re Rahim, Bankr. E.D. Mich., Dec. 16, 2010 (Case No. 10-57577-R, Hon. Steven Rhodes).

When one thinks of Chapter 7 bankruptcy cases, the low-income consumer debtor who is overwhelmed by debt often comes to mind. But individuals whose debts are primarily "non-consumer" debts – usually business debts – may also qualify for Chapter 7 relief, even if they cannot pass the "means test" required for consumer debtors under BAPCPA. Because business debtors do not have to pass the means test, their incomes may be significantly higher than what one might expect to see in a Chapter 7 case. However, at least one Michigan bankruptcy court is requiring high-income business debtors to tighten their belts when they seek Chapter 7 relief.

In In re Rahim, the married debtors, both practicing physicians, earned a startlingly high income. Despite having filed Chapter 7, the debtors' annual income exceeded $500,000, and their expenses included sizeable mortgage payments on their home, vacation home, and rental home, plus payments on three luxury vehicles. Their debts included numerous mortgages and personal guaranty liability arising out of failed real estate ventures. Read More ›

Categories: Chapter 7, Eastern District of Michigan

New Amendments to Bankruptcy Rules Take Effect

Although less sweeping than the 2009 rule amendments, which changed the time periods for many actions, bankruptcy professionals should take note of the most recent changes to the Bankruptcy Rules. 

Notably, Amended Rule 1007(c) increases the time for an individual debtor in Chapter 7 to file the statement of completion of a course concerning personal financial management from 45 days to 60 days. Read More ›

Categories: Chapter 11, Chapter 13, Chapter 7

Annuity Purchased by Non-Filing Spouse Can Become Property of Bankruptcy Estate

In re Olsen, E.D. Mich., Oct. 27, 2010 (Case No. 10-10926, Hon. Stephen J. Murphy, III, District Judge).

When a person files bankruptcy, all of his or her property becomes property of the bankruptcy estate. This concept of "property of the estate" casts a wide net and includes all of the bankruptcy debtor's legal and equitable interests in property. However, questions often arise when a debtor is listed as an owner of an asset that someone else purchased. In such cases, the debtor might argue that he or she is not the "true," or equitable, owner of the property and that the property therefore cannot be used to pay creditors.

In In re Olsen, the debtor's husband, who did not file bankruptcy, was in a motorcycle accident. He settled a claim for his personal injuries and used the settlement funds to purchase an annuity. He and his wife, the debtor, were listed as co-owners and co-annuitants, and both were entitled to receive payments under the annuity. Read More ›

Categories: Eastern District of Michigan

Chapter 7 Trustee May Avoid Mortgage on Platted Land Where Legal Description Fails to Identify Plat

Richardson v. Wells Fargo Home Mortgage, Inc. (In re Brandt), Bankr. W.D. Mich., Nov. 30, 2009 (Adv. Pro. No. 08-80342, 421 B.R. 426, Hon. James D. Gregg), affirmed, W.D. Mich., Aug. 25, 2010 (Case No. 1:10-CV-55, Hon. Robert Holmes Bell).

Outside of bankruptcy, errors in legal descriptions in mortgages often can be corrected. But when a mortgagee files a Chapter 7 bankruptcy case, a mistake in a legal description can open the door for a trustee to avoid the mortgage and potentially liquidate the property for the benefit of the debtor's unsecured creditors. Read More ›

Categories: Chapter 7, Western District of Michigan

Bankruptcy courts split as to dischargeability of personal guaranty liability

In re Lipa, E.D. Mich., Aug. 17, 2010 (Case No. 04-74608, Hon. Steven Rhodes).

In re Weeks, W.D. Mich., Jan. 23, 2009 (Case No. 05-02298, 400 B.R. 117, Hon. Jeffrey R. Hughes).

It is not uncommon for debtors - particularly those who own businesses - to sign personal guaranties before their bankruptcy filing. Pre-petition obligations under those guaranties are generally discharged in bankruptcy. But when a post-petition obligation arises under such a guaranty, the Bankruptcy Courts for the Western and Eastern Districts of Michigan are divided as to whether a guarantor-debtor is protected by his or her discharge. Read More ›

Categories: Eastern District of Michigan, Western District of Michigan

Bankruptcy Court Rejects Chapter 7 Trustee's Efforts to Revoke Abandonment of Property

In re Reiman, Bankr. E.D. Mich., July 16, 2010 (Case No. 09-70776, Hon. Phillip J. Shefferly).

Because of the high volume of foreclosures in Michigan, some lenders are bidding less than fair market value at foreclosure sales, particularly on the east side of the state. This has created a conundrum for Chapter 7 trustees who close cases as "no asset" cases, only to discover after the foreclosure sale that they could have sold the property at market value, paid the redemption amount, and still had money remaining to distribute to unsecured creditors. Read More ›

Categories: Chapter 7, Eastern District of Michigan

Espinosa Does Not Excuse Compliance With Bankruptcy Rules When Defect is Detected Pre-Confirmation

In re Peckens-Schmitt, Bankr. W.D. Mich., July 16, 2010 (Case No. 10-04164, Hon. Scott W. Dales).

In a notable decision, the United States Supreme Court recently upheld a bankruptcy court's confirmation of a Chapter 13 plan that discharged part of a student loan debt without an adversary proceeding where the student loan creditor had notice of the plan but did not object. United Student Aid Funds, Inc. v. Espinosa, 130 S. Ct. 1367 (2010). Read More ›

Categories: Chapter 13, U.S. Supreme Court, Western District of Michigan

Debtors' Counsel Take Heed: Chapter 7 Debtors Must Schedule a Good Faith Estimate of the Value of Their Anticipated Income Tax Refund

In re Trudell, Bankr. W.D. Mich., Feb. 19, 2010 (Case No. 09-00340. Hon. Jeffrey R. Hughes).

Attorneys for bankruptcy debtors have a duty under the Bankruptcy Code to ensure that the information in the debtors' schedules is accurate. A recent decision from the Bankruptcy Court for the Western District of Michigan cautions debtors' attorneys that this duty extends to the disclosure of anticipated income tax refunds.

When the chapter 7 debtors filed their schedules, they indicated that they did not expect to receive an income tax refund. Several weeks later, the debtors filed their tax return, which showed that they were entitled to a $5,000 refund. The debtors subsequently amended their schedules to disclose the refund and to fully exempt it. Thereafter, the debtors spent their refund. Read More ›

Categories: Chapter 7, Western District of Michigan

Michigan Constitution Does Not Create Independent Personal Property Exemption

In re Caperton, Bankr. W.D. Mich., Dec. 21, 2009 (Case No. 09-09540, Hon. Scott W. Dales).

The Bankruptcy Court for the Western District of Michigan recently rejected a debtor's attempt to exempt property based on a provision of the state constitution. The chapter 7 debtor elected to rely on state exemptions and, in addition to those statutory exemptions, claimed an exemption in $750 in personal property under Article X, § 3 of the Michigan Constitution ("Section 3"). Section 3 provides in part that "personal property of every resident of this state in the amount of not less than $750, as defined by law, shall be exempt from forced sale on execution or other process of any court." Read More ›

Categories: Chapter 7, Western District of Michigan

Action for Injunctive Relief is Not "Claim" Subject to Discharge For Purposes of Obtaining Relief From the Automatic Stay

In re Hillenbrand, Bankr. E.D. Mich., Feb. 4, 2010 (Case No. 09-75574, Hon. Steven Rhodes).

Although the commencement of a bankruptcy case usually stays a pending state court action against the debtor, a recent decision of the Bankruptcy Court for the Eastern District of Michigan concluded that the stay does not preclude an action seeking an injunction. Read More ›

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