Monthly Archives: May 2014

Bankruptcy Filing Fees are Increasing June 1, 2014 in the Northern and Eastern District Bankruptcy Courts

By Ryan C. Wood

If you are thinking about filing for bankruptcy protection from your creditors you should be aware that the bankruptcy filing fees are increasing effective June 1, 2014. Here is a list of increased fees that may affect you:

Chapter 7 bankruptcy filing fee will increase from $306 to $335     NOW $338
Chapter 9 bankruptcy filing fee will increase from $1,213 to $1,717  NOW $1738
Chapter 11 bankruptcy filing fee will increase from $1,213 to $1,717  NOW $1738
Chapter 11 bankruptcy filing fee will increase from $1,046 to $1,550
Chapter 12 bankruptcy filing fee will increase from $246 to $275
Chapter 13 bankruptcy filing fee will increase from $281 to $310     NOW $313
Chapter 15 bankruptcy filing fee will increase from $1,213 to $1,717    NOW $1738
Adversary Proceeding filing fee will increase from $293 to $350.

If you want to bifurcate your bankruptcy case (meaning if you filed the petition with another person and you now want to split up the case) the fees have increased as well. The filing fees are essentially the same as above. For example, to bifurcate or split a Chapter 7 case the filing fee will be $335. To bifurcate or split a Chapter 13 case the fee will be $310. You will be essentially paying double to split a case (once when the case was filed and once when you bifurcate or split the case).

This may not be an exhaustive list of all the increased fees. There may be other increased fees that may affect you. You should contact your bankruptcy attorney or check the court’s website if you want to see what other fees have changed. The fee schedule is applicable to the Northern and Eastern Districts of California. Other jurisdictions may change their bankruptcy filing fees as well. You should check your jurisdiction’s website to verify if the fees have changed.

The last time the court increased the bankruptcy filing fees was back in December 2013. The fees have increased again after 18 months. If you retained the services of a bankruptcy lawyer previously, but your bankruptcy case is not filed yet, you should ensure your case is filed by the end of May to avoid the increased bankruptcy filing fees in the Northern and Eastern District Bankruptcy Courts.

If you can not file until after June 1, 2014, do not be surprised that you now have to pay more to file your bankruptcy case. If your retained a lawyer but have not filed your case by the end of this May your bankruptcy lawyer may be asking you for additional fees to cover the increased bankruptcy cost. They are not arbitrarily asking you for more money but since your bankruptcy attorney will not have to pay more to file your bankruptcy case they may need to recoup the funds from you. If you want to avoid the fees then make sure your case is ready to file and provide the attorneys with all your paperwork, complete the credit counseling course, and review and sign your petition prior to the end of May. This way you will know for sure that you will not be responsible for additional bankruptcy court filing fees unless you want to bifurcate or split your bankruptcy case in the future.

If you already retained an attorney but have not completed all the steps necessary to have your bankruptcy case filed yet now is the time to finalize everything to get your case filed before the fee increase. You need to be sure you made all the payments to your attorney, take the credit counseling course and obtain a certificate of completion, review and sign your petition to ensure it is filed before June 1, 2014 to avoid paying the increased filing fee amount. If you are filing your bankruptcy case without an attorney you should be sure to file your bankruptcy case by May 30, 2014 to avoid paying the increased filing fee amount as well.

Improper Estate Planning Leads to Sale of Properties in Bankruptcy

By Ryan C. Wood

If you have properties you are trying protect either for estate planning purposes or for purposes of filing bankruptcy the most important lesson is to plan properly. It is always best to obtain the advice of an experienced professional like an estate planning attorney or a bankruptcy attorney to ensure you do not lose the very property you are trying to protect.

One family learned this lesson the hard way. In Oklahoma, Mr. and Mrs. Gragg transferred title to their three properties to themselves and their two daughters (Angela Harrison and Melody Lavender) via quitclaim deeds so that each of them had a 25% interest in the properties as joint tenants with the right to survivorship. They did this for estate planning purposes. Only two of the properties were at issue in this case. Both of the properties were paid in full. Neither of their daughters had made any payments towards to the house and the Graggs received all the rent and paid the corresponding taxes and used the deductions on their tax returns. Ms. Harrison filed for Chapter 7 bankruptcy protection. (In re Angela Michelle Edmound Harrison, Case No. 11-13580). Ms. Harrison listed her 25% interest in the properties in the petition schedules with footnotes indicating that her and her sister were added to the title of the properties for their parent’s estate planning purposes only. Harrison claimed she did not have any ownership or control over the properties. The total market value for both of the properties in question is approximately $170,000 to $180,000. The total creditor claims filed in the case was approximately $35,000. The Chapter 7 trustee in the case moved the court to sell the two properties for the benefit of Ms. Harrison’s creditors even though there were three other people on title to the properties that did not file bankruptcy. The trustee proposed to sell the both properties because the properties could not be properly partitioned and sold. The trustee is proposing to sell both properties, give the Graggs and Ms. Lavendar their 75% of the proceeds and pay Ms. Harrison’s creditors in the bankruptcy case with Ms. Harrison’s 25% of the proceeds. The Graggs objected to this sale and argued that Ms. Harrison did not have any recognizable interest in the property and the trustee did not have the right to sell the properties.

The judge in this case concluded that Oklahoma law controls and under Oklahoma law, a quitclaim deed is sufficient to provide notice of the claim to title in the property. If the deed itself does not convey what the original parties intended to convey, the law allows the parties to show what the original intent was. Whether that intent should be binding on an innocent third party buyer is the big question in this case. Once a bankruptcy petition is filed the trustee steps into the shoes of a bona fide purchaser of the property. Based upon the deeds themselves, nothing provides notice to the bona fide purchaser that the deed was only for estate planning purposes. The deeds only show that each party receives 25% interest in the properties as joint tenants with the right of survivorship. Nothing puts the bona fide purchaser on notice that the actual circumstances are different than what is listed on the deed. The Graggs also argued that since they paid for all expenses and taxes related to the property their daughters only hold bare legal title and that Ms. Hamilton’s interest is subject to a resulting trust in favor of the Graggs. The trustee does not dispute this. The court indicated that even if there was a resulting trust Oklahoma law mandated that express or implied trusts do not defeat the title of a bona fide purchaser of real property.

The Graggs lost their properties in bankruptcy even though they did not file bankruptcy themselves. One issue not discussed in the case is that the Graggs could have purchased the bankruptcy estate’s interest in the two properties instead of both properties being sold. As long as the bankruptcy estate receives the same value as if the properties were sold. It is unclear whether Harrison’s bankruptcy attorneys attempted this or if it was even financially possible for the Graggs to do. Even though the Graggs received the full value of their interest in the properties minus Ms. Harrison’s 25% share the Graggs no longer have the rental properties and lost a chunk of their income stream. This is all because they used the wrong estate planning tool. If they had an attorney draw up a revocable living trust naming their daughters as beneficiaries and including a spendthrift provision in their trust the scenario could have played out differently.

Can I or Should I File a Motion to Reopen My Bankruptcy Case?

By Ryan C. Wood

Bankruptcy cases normally close for two reasons: 1) all of the requirements have been fulfilled and the allowable debts have been discharged or 2) one or more of the requirements have not been completed as requested and the bankruptcy case has been dismissed. The debts in cases that have not met all the requirements that are closed have not been discharged. If you need anything further from the bankruptcy court after the closure of your case you need to file a motion to reopen your bankruptcy case. Pursuant to 11 U.S. §350(b), “A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.” Federal Rules of Bankruptcy Procedure Rule 9024 indicates a motion to reopen a bankruptcy case is not subject to the one year limitation prescribed in the Federal Rules of Bankruptcy Procedure Rule 60. This means that you may bring your motion to reopen a case years after your case was closed. The court charges a filing fee to reopen your case. So why would you want to reopen your bankruptcy case? Here are several more common reasons why you may want to do so:

1. You did not File a Financial Management Certificate with the Court

One of the requirements in receiving a discharge pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is that you take a mandatory financial management course. This class provides information about managing your finances and attempts to teach you how to budget. Once you complete the course you receive a certificate of completion. This certificate is also referred to as the financial management certificate. You need to file this certificate with the court in order to receive a discharge of your debts. If you do not file this certificate with the court your bankruptcy case is closed without a discharge. This means that all your hard work leading up to and including the bankruptcy filing is for naught as the creditors can still try to collect their debt from you after the bankruptcy case is closed. This is true even if you were in a Chapter 13 bankruptcy case and you made all the required payments to the Chapter 13 trustee according to your Chapter 13 plan. If your case is closed without a discharge because of the non-filing of the financial management certificate, the fix is simple: contact your bankruptcy attorney to reopen your bankruptcy case (and pay the court filing fee) to file the certificate. Once you file the certificate you will receive a discharge of your debts and the case will be closed again.

2. You did not Pay the Filing Fee Installment as Required by Court Order

Some people choose to pay the court’s filing fee in installments due to financial issues. The court issues an order with deadlines to make each filing fee installment payment. If you miss one installment even by one day the court may dismiss your case for not following their order. If this is the case you need to file a motion to reopen the bankruptcy case (and pay the court filing fee to reopen) to pay the remainder of the filing fee. Note there are two fees discussed here: the court filing fee to file your bankruptcy case and the court filing fee to reopen your case.

3. You did not Pay the Chapter 13 Plan Payment as Required

If you filed a Chapter 13 Bankruptcy you must make each and every monthly payment to the Chapter 13 Trustee to obtain the relief you seek. If you do not abide by the terms of the approved Chapter 13 plan, and miss a payment the trustee, the trustee will file a motion to dismiss your case with the court. If you are unable to pay the entire amount of arrears you can consult with your bankruptcy lawyer to see what alternatives are available to you. If your case is dismissed you may choose to reopen your bankruptcy case to pay the missed payments and continue on with your Chapter 13 Plan.

4. You Want to File a Motion to Avoid a Judgment Lien

You can file a motion to avoid a judgment lien from your personal or real property in a Chapter 7 or Chapter 13 bankruptcy case if the lien impairs your exemptions. Many people who file Chapter 7 bankruptcy cases pro se or with a bankruptcy petition preparer (meaning they did not have a bankruptcy attorney and they represent themselves in the case) do not know the law, that judgment liens can be avoided or know how to file a motion to avoid a judgment lien. This is one of the many reasons you should always consult with bankruptcy lawyers before filing bankruptcy. Even if your case is closed and your debts are discharged you may file a motion to reopen your bankruptcy case to file the motion to avoid a judgment lien that impairs your exemptions.

5. You Want to Add Creditors to Your Bankruptcy Case

If you forgot to list a creditor in your bankruptcy case, your debts have already been discharged and your case closed, you can reopen your bankruptcy case to include your forgotten creditors depending on the jurisdiction in which you live. In the 9th Circuit if you have a no-asset Chapter 7 bankruptcy case (meaning all your assets are exempt and therefore no assets were administered by the Chapter 7 Trustee) this is not necessary given the creditors would not have received anything even if they were notified of your bankruptcy filing.

The above list is not an exhaustive list of why a motion to reopen a bankruptcy case may be filed. There are numerous other reasons why other parties like the trustee assigned to the case might want to reopen a bankruptcy case. The closure of your bankruptcy case does not necessarily mean your case is over.

Are my Assets in my Revocable Living Trust Part of my Bankruptcy Estate?

By Ryan C. Wood

In general, all of the assets that you own are supposed to be disclosed as part of your bankruptcy estate when you file for bankruptcy (with certain exceptions of course). Are assets you transferred into a revocable living trust part of your bankruptcy estate as well? The answer is yes, they are part of the bankruptcy estate even though the trust is a separate legal entity.

A revocable living trust is normally used as a probate avoiding tool. All the assets included in the trust do not have to go through probate court. This may save significant time and money for the beneficiaries: they get their inheritance faster and they have more of the inheritance left over for them. Upon the passing of the settlor or grantor (person who transferred the asset into the trust to create the trust) the assets in the trust are distributed based upon the wishes of the settlor or grantor.

Although the revocable living trust is a great probate-avoiding tool it is not a great bankruptcy planning tool. That’s because a revocable living trust is revocable. The trust can be modified or revoked at any time. If the owner of the trust assets decides he or she no longer wants the asset to be in a trust, the owner can take the asset out of the trust. If the owner wants to sell the house he or she has the power to do so because it is still their property. It is this freedom that makes the trust a poor bankruptcy planning tool. The bankruptcy trustee steps into your shoes when you file for bankruptcy. Everything you have access to, the trustee and your creditors do as well. That means that the trustee may have the power to sell your house if it is not properly exempted. If you have assets in a revocable living trust you should consult with bankruptcy attorneys to determine if the assets can be protected or not before filing bankruptcy. It may be counter productive if you file for bankruptcy and end up losing your house or other significant assets you may have.

An example of the above situation is if you transferred your house worth $500,000 into a revocable living trust. You name yourself the trustee for the trust during your lifetime. The house has a $250,000 mortgage in your name that still needs to be paid off. If you file a Chapter 7 bankruptcy case without the advice of a lawyer it may be detrimental to your case. Some people may think that an asset in a revocable living trust does not need to be included in the bankruptcy estate because the trust is a separate legal entity. You may end up potentially losing your home if you do not have adequate legal counsel to guide you. That is because there is no bankruptcy exemption with a limit high enough to protect $250,000 in equity in your home (depending on the jurisdiction in which you live, a couple of states have unlimited homestead exemptions). Once you have filed a Chapter 7 case you cannot voluntarily dismiss it at any time either once you find out that it is detrimental to your finances. You will have to stick it out and abide by the orders of the court. This is why it is essential to consult with bankruptcy lawyers when you have any assets that may need protecting. There may be some types of irrevocable trusts that may be excluded from the bankruptcy estate. They may be excluded because you do not have access or control over the trust and therefore the bankruptcy trustee may not have access or control over these trusts. It is highly recommended that you seek the advice of competent legal counsel to advise you on such matters.