Articles Posted in Chapter 13

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When a business becomes unable to meet obligations such as employee salaries, day to day invoices, and bank debt, management may turn to Bankruptcy law to liquidate or reorganize. As a rule, Courts prefer reorganization over liquidation, provided reorganization would be viable, preserve jobs, keep assets productive, and enhance the local economy. To begin with though, the question of whether Bankruptcy is the best way to deal with business challenges depends on several factors, including:

  • The form of the business (sole proprietor, partnership, corporation, LLC, etc.)
  • Whether the person(s) behind the market are also personally liable for debts
  • The number, amount, and type of debts that were incurred by the company
  • Whether it makes more sense to close the business or to keep it running

There are three basic types of Bankruptcy available for businesses: Chapter 7 liquidation, Chapter 11 reorganization, and Chapter 13 reorganization for sole proprietors. Continue reading

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This post was prepared by yours truly, with contributions from Phil Bradford, a financial web content writer. Phil graduated from New York University School of Law and recently joined Herald University as a reporter. He has also written for websites such as debtfreeguys.com and disabilitycanhappen.org

An now, on with the post…

Those who’ve exhausted their financial options or are unable to meet obligations due to illness, divorce, job-loss, or other life-altering events, may consider filing Bankruptcy to get their life back on track.  Here is a quick-guide to help you navigate the process with the help of a good Bankruptcy Lawyer:

Basic Types of Bankruptcy

The most basic distinction when thinking about Bankruptcy is the one between a liquidation (Chapter 7) and a reorganization (Chapter 13 for most people). Whether you need to file a Chapter 7 or 13 case will depend on several factors, including:

  • Total “household” income
  • The value of your property
  • What you stand to lose
  • What you intend to keep

That said, below you will find a few of the most important points when considering if Bankruptcy is right for you.
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7th Circuit Court SealTrentadue v. Gay, No. 15-3142 (7th Cir. 2016)

7th Circuit Court of Appeals

In May 2013 a Wisconsin Court determined that Trentadue committed “significant over‐trial” and ordered that he contribute $25,000 toward his ex‐wife’s Attorneys’ fees. In support of its finding the Court noted that “Trentadue’s desire to ‘win’ resulted in additional legal fees for his ex‐wife” and directed Trentadue to make payments directly to his ex‐wife’s lawyer. Trentadue appealed the ruling to the Wisconsin Court of Appeals. The Court of Appeals agreed with the Trial Court, and the Supreme Court of Wisconsin denied a further appeal.

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BK Ct. ND IL EDIn re: Richard D. Olson, 16-01356 Chapter 13
Bankruptcy Court, N.D. Illinois, Eastern Div.
Opinion Date: June 22, 2016 Judge Schmetterer

This Memorandum Opinion addresses the feasibility and good faith of a Chapter 13 Plan of Reorganization filed on the even of foreclosure by a homeowner. The Mortgagee bank wanted to shut down the case and the Plan. The Court said “not so fast” and prepared a carefully crafted analysis of each objection filed by the bank.

Facts

Richard Olson filed four Chapter 13 Bankruptcy Petitions and Plans in a five year period- the last one on the eve of the foreclosure of his home. Ventures Trust 2013-I-H-R (“Mortgagee”), assignee of the Debtor’s original mortgage lender Bank of America, objected to confirmation of the latest Plan on the basis that it failed to comply with the confirmation requirements in 11 USC §§1325(a)(1), (a)(3), (a)(6) and (a)(7). Specifically, the Mortgagee alleged that there were inaccuracies in the Debtor’s schedules, that the Debtor had failed to correctly value certain obligations while not disclosing others at all, that the Plan was not “feasible,” and that both the case and the Plan had been filed in “bad faith.” In response, the Debtor amended his Bankruptcy Schedules to address some of the inaccuracies.

It is worth noting that the Plan under review in this case proposed curing mortgage defaults per §1322(a)(5) and reinstating monthly mortgage payments to the Mortgagee; as well as committing all the Debtor’s disposable income for the maximum commitment period of 60 months. General Unsecured Creditors are scheduled to receive not less than 2% of the face value of their claims.

The Court entered a Memorandum Opinion on the balance of the Mortgagee’s Objection before ruling on confirmation of the Plan.
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BK Ct. ND IL EDIn re: William W. Yotis III, Chapter 13 Debtor
ND IL ED 2016, Bankruptcy No. 14-bk-02689

Anthony C. Gasunas, Plaintiff v.
William W. Yotis III, Defendant
ND IL ED 2016, Adversary No. 14-ap-00321

Decision: March 28, 2016 Judge: Schmetterer

This Adversary case filed in a Chapter 13 Bankruptcy relates to promissory note fraud between the debtor and creditor. It was tried before Judge Schmetterer. Plaintiff/Creditor Anthony C. Gasunas (“Gasunas”) filed the Complaint to determine dischargeability of the debt owed to him by Debtor/Defendant William W. Yotis, III (“Yotis”). Specifically, the Complaint alleged that Yotis made knowing and fraudulent misrepresentations to borrow money from Gasunas and that the judgment obtained in State Court was not subject to a dischargeable in accordance with §523(a)(2)(A) and (B), as well as §523(a)(4).

Facts

Shortly after Yotis and Gasunas met, Yotis disclosed that he had lost his license to practice law. But Yotis also did not disclose that he had been criminally indicted for forgery and charged in a civil suit filed by the Illinois AG with consumer fraud and deceptive business practices. Nord did Yotis tell Gasunas about any allegations of fraud and related misconduct prior to or after he obtained a series of loans from Gasunas. From 2009 to 2010 Yotis solicited loans from Gasunas totaling $52,345 and gave him a Promissory Note in return. When Yotis failed to pay him back, Gasunas filed suit in State Court and secured a judgment for $52,345 plus costs (the “Judgment”). During this period Gasunas and Yotis were friends – having been introduced through Yotis’ wife – Cavallo – and for that reason the Judgment was extended. Prior to meeting Yotis, Gasunas learned from Cavallo that Yotis was a disbarred Attorney, but had gotten his life back together as a salesman for a remodeling company. Cavallo also told Gasunas that Yotis had been incarcerated on what she said were false charges. Eventually, Yotis and Gasunas met and became friendly.

Yotis acknowledged signing a Promissory Note but denied making any misrepresentations and argued instead that any reliance by Gasunas on his alleged representations would not have been justifiable – a prerequisite for such a claim of nondischargeability. In fact, Yotis claimed that Gasunas knew the terms and debt recited in the Promissory Note were false when he signed it.

Following a trial the Court concluded that there had been a series of misrepresentations by Yotis in obtaining loans from Gasunas and that reliance on those misrepresentations was justifiable. Accordingly, Judgment was entered in favor of Gasunas on Count I under § 523(a)(2)(A); but on Count II found in favor of Yotis.
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7th Circuit Court Seal

Smith v. Sipi, LLC
7th Circuit U.S. Court of Appeals
Docket 15-1166 Date:Jan. 20, 2016

In this case from right in our neighborhood – Joliet, Illinois – the Bankruptcy Court and 7th Circuit agree that using the market value of property instead of its artificially low disposal price in a tax sale reflects the real intent of both Bankruptcy law and Illinois law. At the same time, both Courts agree that one taking from a tax-sale buyer is entitled to bona fide purchaser protection.

Background

The Smiths lived in a single-family home in Joliet, Illinois. In 2004 Mrs. Smith inherited the property. While living there in 2000, she and her husband failed to pay the real estate taxes, giving rise to a tax lien in favor of Will County. At a 2001 auction, SIPI purchased the tax lien and paid the delinquent taxes of $4,046.26 plus costs.Mrs. Smith did not redeem that tax obligation and SIPI recorded its Tax Deed in 2005; ultimately selling the property to Midwest for $50,000.

Procedural History

In 2007 the Smiths filed for Chapter 13 Bankruptcy protection and successfully sought to avoid the Tax Sale. Both the Bankruptcy Court and the 7th Circuit Court of Appeals agreed that under the terms of 11 U.S.C. 548(a)(1)(B) the property was not transferred for reasonably equivalent value. However, both Courts did find that Midwest was a “subsequent transferee in good faith” (i.e. a bona fide purchaser) entitled to retain the value of the property it had purchased.

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Seymour vs. Collins, 2015 IL 118432

Supreme Court of Illinois, September 24, 2015

In Seymour the Illinois Supreme Court addresses whether action, or inaction, in connection with a Federal case such as a Bankruptcy, should give rise to estoppel in connection with a State cause such as personal injury. The Answer is something of a surprise.

Facts

In 2008 the Seymours filed a Chapter 13 Bankruptcy Petition. 2 years into their Plan or Reorganization, they filed a personal injury action based on a 2010 automobile accident. In 2010 they successfully moved to modify their Plan; reducing their monthly payments because Mr. Seymour was unable to work due to the accident and the couple’s sole source of income was now workers’ compensation.

Procedural Background

Despite having moved to modify their Plan, the Seymours never officially apprised the Bankruptcy Court that their circumstances changed; nor did they amend their Bankruptcy Schedules. On that basis, the Defendants in the State Court case were able to secure summary judgment using an estoppel argument. The notion was that since the Debtors failed to advise the Bankruptcy Court of their case, they should not be permitted to proceed in State Court Continue reading

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United States Supreme Court, Docket: 14-116 Opinion Date: May 4, 2015

Appellant Bullard filed a Chapter 13 Bankruptcy case and proposed Plan. The Debtor’s mortgage lender objected to the treatment of its claim under the Plan and the Bankruptcy Court sustained that objection, denying confirmation of the Plan with leave to amend.

First Appeal

The Debtor appealed the denial of confirmation to the 1st Circuit Bankruptcy Appellate Panel, which concluded that denial of confirmation was not a final, appealable order under 28 U.S.C.158(a)(1). Nonetheless, the BAP heard the issue as an interlocutory appeal – the operative provision in the Bankruptcy Code requiring “with leave of the court.” Tha BAP agreed that Bullard’s proposed Plan did not accord proper treatment to the mortgage company and upheld the ruling of the Bankruptcy Court.

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Think you know about Lien Strips, the controversial practice featured in our post here? Well think again, because the law may be changing. Lucky for you we have an update ready to go.

WHAT IS A LIEN STRIP?

11 USC 1322(b) provides that wholly undersecured liens on real property may be removed or “stripped,” and the debt to which they relate treated as unsecured in a Chapter 13 Plan of Reorganization. Lien stripping has 2 distinct, and very desirable, benefits for debtors:

  1. The lien strip removes the junior lien from the property entirely; and
  1. The debtor only pays a percentage of the claim (as if it were an unsecured debt).

CAN A PARTIAL LIEN STRIP SUCCEED?

There is no such thing as a partial lien strip. Bankruptcy Courts will only allow a lien to be stripped if it is wholly undersecured (i.e. unsecured): that is, the secured potion is zero or negative. Moreover, lien stripping is permissible only for claims secured by the Debtor’s principle residence because a lien strip modifies the “total package of rights for which the claim holder bargained.”

QUALIFYING FOR A LIEN STRIP

For a lien to be stripped, the value of the debtor’s property as of filing, minus fully-secured non-target debts, must be = or < $0. Once upon a time meeting these requirements could be challenging; but today, when many homeowners are “underwater” as to their first mortgage and have a HELOC or 2nd mortgage on top of that, the conditions necessary for a lien strip to take place are relatively straightforward and can sometimes be met without much resistance from the affected creditor.

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For Debtors, Chapter 7 Liquidation is the ultimate relief, while Chapter 13 and 11 Reorganization offers an opportunity to reduce their Debtor’s payments in light of their income. In either type of case however, the Creditor is not entitled to anything until it has filed is Proof of Claim.

What Is a Proof of Claim?

The Proof of Claim or “PoC” is the means by which Creditors state: