Showing 64 posts in 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 delicto. Read More ›
Categories: 6th Circuit Court of Appeals, Chapter 7, Western District of Michigan
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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
Ruling in Prior Litigation Precludes Relitigation of Factual Issues in Bankruptcy Nondischargeable Adversary Proceeding
When a debtor files for bankruptcy, it is principally to obtain a fresh start and discharge of debts from creditors. But not all debts are dischargeable. The Bankruptcy Code lists 19 categories of nondischargeable debts, which Congress has determined are not dischargeable for public policy reasons.
Some debts are always nondischargeable, including certain taxes, child support, and court fines and penalties, to name a few. Others are not deemed automatically excepted from discharge, but can be when challenged by creditors. When a case is filed, bankruptcy courts set a deadline for creditors to raise nondischargeability issues, and creditors who wish to except a debt from discharge must initiate an adversary proceeding (by filing a complaint) setting forth the basis for the discharge objection. These types of debts include those obtained by fraud or false pretenses and those resulting from a tort, among others.
Issues related to the nondischargeability of a debt in a Chapter 7 bankruptcy were recently examined by the United States Bankruptcy Court for the Western District of Michigan. In the case, Trost v. Trost, Sherry Trost, the plaintiff, sought to except from discharge debt owed by the debtors (her stepson Zachary and his wife Kimberly) to her. The debt related to an ownership dispute involving videotapes and other memorabilia from a television show, Michigan Outdoors, that was created and operated by Fred Trost, Sherry's late husband and Zachary's father. Sherry alleged that she became the owner of these assets after Fred died, and that the debtors/defendants converted the property to their own use. Read More ›
Categories: Chapter 7
Law Won
In Law v. Siegel, a case decided by the U.S. Supreme Court in March, the Court unanimously ruled that the bankruptcy court exceeded its authority when it surcharged the debtor’s homestead exemption to pay the Chapter 7 Trustee’s attorney fees, despite the debtor’s misconduct.
The case involved Stephen Law, a consumer debtor who filed for Chapter 7 bankruptcy in California. Law's only significant asset was his house, worth approximately $360,000. Law exempted $75,000 of the home equity under the state homestead exemption. Law further claimed that there was no additional equity in the house because it was subject to two mortgages totaling up to more than $300,000 — more than the nonexempt value of the house. The first mortgage was real. The second mortgage, allegedly in favor of "Lin's Mortgage & Associates,” was fake. Law was perpetrating a fraud. Alfred Siegel, the Chapter 7 Trustee, uncovered the mortgage scam. Unfortunately, in the process, the trustee incurred approximately $500,000 in legal fees. Read More ›
Categories: Chapter 7, U.S. Supreme Court
Chapter 7 Debtor Required to Turnover Proceeds of Life Insurance Policy Used to Pay for Father's Burial
A recent decision in the U.S. Bankruptcy Court for the Western District of Michigan[1] granted a Motion filed by the Chapter 7 Trustee requesting turnover by the debtor of proceeds of a life insurance policy that were used by the debtor to pay the burial expenses of her father.
In the case, the Chapter 7 Trustee filed a Motion to Compel Turnover of Non-Exempt Assets seeking $9,698.90 from the debtor, including non-exempt cash, jewelry, a whole life insurance policy, and the proceeds from an insurance policy on her father's life. The debtor disputed that she was required to turn over the $7,208.84 in life insurance on her father's life, who died two days after her bankruptcy filing. The debtor argued that she used the proceeds to pay for her father's burial, and that she was not a beneficiary of the policy, but rather the owner. Read More ›
Categories: Chapter 7, Western District of Michigan
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