Category Archives: Chapter 13 Bankruptcy

Chapter 13 Bankruptcy and Escrow Payments and Projected Escrow Shortages

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Let the insanity begin. What I will be discussing today are mortgage payments that include property taxes and insurance. The property tax and insurance have been “impounded” as part of the normal monthly mortgage payment and is traditionally called an escrow account. So this type of mortgage payment includes principal, interest, property tax and insurance. Before discussing how this has become extremely frustrating when filing a Chapter 13 bankruptcy case in the Northern District of California let us look at why this situation exists to begin with.

Why Are Property Taxes and Insurance Not Paid Directly By The Borrower

Lenders need to protect their investment. Fine, so as part of that lenders need to ensure property taxes are paid timely and the home is insured. No problem. Here in California lenders cannot force an impound escrow account unless the borrower’s loan to value ratio exceeds 80 percent. I believe this is the most common reason why impound accounts exist. A house is purchased via some favorable program that allows less than a 20% down payment at the time of purchase resulting in a ratio 80% or more. So if you put 20% or more as a down payment then the mortgage company cannot force you into an escrow or impound account. A lender or loan officer could also suggest the borrower have an impound escrow account and the borrower then would voluntarily agree to it.

Also here in California servicers and lenders are required to pay 2% interest to borrowers on funds held in escrow accounts. See Cal. Civ. Code Section 2954.80.

Pursuant to the Real Estate Settlement Procedures Act (RESPA) the servicer or mortgage company must review the property taxes and insurance each year to make sure they are not holding a surplus. At the same time RESPA allows the servicer or lender to collect up to two additional months of escrow payments as a cushion or reserve to protect the servicer or lender in the event a borrower misses monthly mortgage payments. See 12 U.S.C §2609(a)(1).

This is where the problem is created.

How Can A Borrower Have A Projected Escrow Shortage If They Paid All Mortgage Payments When Filing a Chapter 13 Bankruptcy Case?

The key words here are “projected escrow shortage” at the time the chapter 13 bankruptcy case is filed by the bankruptcy attorney of the borrow. So yeah, property taxes change and so do insurance premiums, but not that much. When a borrower files for relief under chapter 13 and is current with all mortgage payments at the time of filing the petition the bankruptcy filer normally just keeps paying the servicer or mortgage company directly just like prior to the filing of the chapter 13 since there are no missed mortgage payments. If no missed payments then no problem; life goes on regarding the loan even though the chapter 13 petition is filed. The chapter 13 should have no effect on the servicer or mortgage lender or the borrower as the bankruptcy filer. The servicer or mortgage lender is a secured creditor and normally files a proof of claim in the chapter 13 bankruptcy case providing the amount of the total secured debt owed and that there are no mortgage arrears or missed payments prior to the case being filed.

Here is when there are more and more problems because of escrow or impound accounts and alleged shortages. Proof of claims are being filed for escrow shortages or projected escrow shortages even though the bankruptcy filer has paid the servicer or mortgage lender all mortgage payments as required.

If the shortage is projected the shortage does not yet exist until some future date? If it does not exist how can this projected shortage be part of a proof of claim? Or if there is future projected escrow shortfall the only way for the servicer or mortgage company to obtain the shortfall is supposed to be by increasing the future escrow payments after the bankruptcy case is filed just like if no chapter 13 had been filed in the first place.

But wait just a second. So now this touches on what is a “claim” in bankruptcy? The Supreme Court of the United States provides “right to payment” in the definition of “claim” meant “nothing more nor less than an enforceable obligation[.]” Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). “Congress intended by this language to adopt the broadest available definition of `claim.'” Id; see also FCC v. NextWave Pers. Commc’ns Inc., 537 U.S. 293, 302, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003). So applying these definitions to a projected escrow shortage we can all agree the shortage is a “right to payment” pursuant to RESPA and the cushion of two escrow payments and can be part of a proof of claim.

Why is this happening though? The servicer of mortgage company is not properly calculating their RESPA cushion prior to the chapter 13 being filed. After the servicer or mortgage company pays a borrower’s property tax there should be a balance in the escrow account representing two escrow payments, the RESPA cushion. This is not happening and when the chapter 13 case is filed it triggers a review of the escrow account and behold there is a projected shortage.

I am not sure why this has become an issue when this dynamic of escrow accounts and RESPA cushion have existed for a very long time, but it is a problem now. Creditors referring to other Circuit opinions that provide that the collecting of pre-petition projected escrow shortages through post-petition mortgage payments is a violation of the automatic stay and arguably opens the creditor to possible sanctions for the violation of the automatic stay. There are a number of potential solutions to the problem, but the one that makes the most sense is that servicers and mortgage companies just properly calculate the RESPA cushion upon review of escrow accounts like they are supposed and this should never be a problem upon the filing of a bankruptcy case. After all, the borrower has made all payments as required by the servicer or mortgage loan company. What more can the borrower to make sure this is not a problem but make the payment requested each month on time?

Another solution is the include language in the chapter 13 plan that provides the service or mortgage lender may collect a pre-petition escrow shortfall from post-petition payments and not be in violation of the automatic stay. This will most likely trigger the necessity of having a confirmation hearing regarding the chapter 13 plan when a hearing would not normally be necessary. This is a waste of judicial resources, the chapter 13 trustee’s time and the attorney for the debtor’s time given the servicer or mortgage loan company did not properly calculate the escrow payment prior to the chapter 13 being filed.

Another solution is to stipulate that the creditor may collect pre-petition projected escrow shortages from post-petition mortgage payments. There is no guarantee that the trustee’s office will sign-off on this stipulation and again could end up with a hearing regarding confirmation of the chapter 13 plan that normally would not have to take place.

To be fair I could also provide any number of scenarios that a debtor or their bankruptcy attorney creates in the course of seeking confirmation of a chapter 13 plan that creditors, the Court and trustee’s office believe to waste their time over and over again so ………… I am just writing about this issue from a bankruptcy filer’s perspective and their attorney.

Why Is It Difficult to Project Escrow Account Funds?

Here in California we have Proposition 13 that limits how much property taxes can increase each year. You would think this would allow servicers and mortgage companies to easily estimate future property taxes and property insurance payments year after year so that there are no issues. Again, I get how sometimes getting numbers right is difficult even when a good faith effort is made to get the numbers right.

It just appears the escrow analysis that is required by law is not happening until the chapter 13 case is filed and the projected escrow shortage is created. If the chapter 13 case was never filed the servicer or mortgage lender would just continue to send statements with a monthly dollar amount owed and the borrower would just keep making the payment each month and there would be no issues. The part of the monthly escrow payment would increase or decrease depending upon the whim of the servicer or mortgage company ……….

Update Regarding Paul Teutul’s Chapter 13 Bankruptcy May 8 2018

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Since the last time I took a look at American Chopper star Paul Teutul’s Chapter 13 bankruptcy filing a lot happened. Again, as a fan of American Chopper I am saddened by Mr. Teutul’s bankruptcy filing. At the same time and I am a huge advocate for second chances and our right to seek protection under the Bankruptcy Code as Congress wrote it and the President of the United States of America signed into law. I am hopeful Paul Teutul, Sr., can get the relief he desires and save his home from foreclosure. Since my last update I learned that Paul Tuetul, Sr. is actually legally a junior and that is why the bankruptcy petition provides Paul Teutul, Jr. filed for bankruptcy protection and that appears to be legally correct. Who knew?

Paul Teutul, Sr. Has Changed Attorneys

The first noteworthy occurrence was Paul Teutul, Sr. changed bankruptcy attorneys from Michael A. Koplen to Erica a. Aisner on or around April 5, 2018. There are any number of reasons to change bankruptcy attorneys and it would be improper to speculate as to why. Every bankruptcy filer has the right to represent themselves in bankruptcy or hire an attorney of their choosing to represent their interests in a bankruptcy case. See Section 527 of the Bankruptcy Code for more information on that.

Motion For Relief From Stay Filed By JTM Motorsports, LLC

The backbone of the bankruptcy process is the automatic stay that goes into effect as soon as a bankruptcy case is filed enjoining or stopping any and all collection activity such as foreclosures, repossession, lawsuits, wage garnishments and other debt collection activity. A creditor, or party that is owed money or has a claim at the time the case is filed may request the bankruptcy court grant relief from the automatic stay under certain circumstances. Relief from the stay gives that creditor or claimant holder bankruptcy court permission to continue to enforce their state law rights against the bankruptcy filer to collect on the debt or alleged claim owed to them. The most common reason for a creditor to seek relief from stay is unpaid mortgage payments or unpaid vehicle loan payments. These are secured debts so the creditor will want relief from stay to continue to enforce their rights against the collateral securing their debt by beginning or continuing a foreclosure action on real property or repossess personal property like a vehicle.

Paul Teutul, Sr. listed a 2009 Corvette ZR1 as an asset and JTM Motorsports alleges they have a lien, or garagemans’s lien, against the 2009 Corvette ZR1, securing a debt owed to them by Paul Teutul, Sr. The Amended Chapter 13 Plan Paul Teutul, Sr. filed does not provide a treatment for JTM Motorsports, LLC’s alleged secured claim against the 2009 Corvette ZR1, the collateral securing the alleged lien. I say alleged claim given Paul Teutul, Sr. may be able to object to the claim being secured. JTM Mortorsports, LLC, is saying either pay us through the Chapter 13 Plan or give us our collateral back, the 2009 Corvette ZR1. Time will tell how this all plays out.

JTM Motorsports LLC’s Objection to Confirmation of Paul Teutul Sr.’s Chapter 13 Plan

When a secured debt is not listed in a Chapter 13 Plan a creditor does normally object to confirmation or approval of the Chapter 13 Plan of reorganization for this reason. Confirmation of a chapter 13 plan means approval of the terms of the chapter 13 plan pursuant to Section 1325 of the Bankruptcy Code. As the motion for relief from stay filed by JTM Motorsports, LLC, also alleges, the Paul Teutul Sr.’s Amended Chapter 13 Plan does not provide for payment to allegedly secured creditor JTM Motorsports, LLC. The hearing on JTM Motorsports, LLC’s motion for relief from stay is schedule for June 5, 2018. Again, time will tell what happens.

Amendments of Petition and Statements

Paul Teutul, Sr. recently amended his schedules to include many more vehicles and all-terrain vehicles to his assets with values listed. This is 54 pages of changes and provides a clearer picture of Paul Teutul Sr.’s assets. This is not uncommon given for most filing for bankruptcy is a last resort to preserve assets. Again, I hope Paul Teutul, Sr. gets the relief he wishes and saves his home from foreclosure.
That is it for now. I hope to next provide an update that the case is moving along, not dismissed and relief is just around the corner.

Can A Chapter 13 Trustee Make My Employer Pay My Chapter 13 Plan Payment?

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The answer is an absolute yes. How that is accomplished is a different story though. But yes, a Chapter 13 Trustee after confirmation of your Chapter 13 Plan can make your employer pay the monthly Chapter 13 Plan payment directly to them each month. The key part is that this could happen after confirmation or approval of your Chapter 13 Plan of reorganization. Most of the time the bankruptcy filer makes the plan payment directly to the Chapter 13 Trustee by money order, cashier’s check and now in some jurisdictions or directly from their checking account through the TFSbillpay.com system. The Chapter 13 Plan payment has to be paid in some form of certified funds. The point of this article is about how a Chapter 13 Trustee can make your employer pay the monthly Chapter 13 Plan payment though. If you do not want this to be an issue, then never ever miss or pay your Chapter 13 Plan payment late. The trustee is not trying to make sure you are successful in reorganizing your debts by timely paying the chapter 13 plan payment you agreed to pay each month and the Court confirmed or approved by Court order.

Where Does The Bankruptcy Code Allow This?

I think Bankruptcy Code Section 1325(c) is a little known and less talked about provision of the Bankruptcy Code. As a bankruptcy attorney we focus more on the requirements for confirmation listed in Section 1325(a) and Section 1325(b). Section 1325(c) provides: “After confirmation of a plan, the court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee.” That is all it says. There are no notice provisions. No other guidelines for how the court or standing chapter 13 trustee may administer Section 1325(c) of the Bankruptcy Code. It merely says the trustee may after confirmation of the plan make any entity from whom the debtor receives income to pay all or any part of such income to the trustee. Section 101(15) of the Bankruptcy Code defines “entity” as including a person, estate, trust, governmental unit, and United States trustee. Section 1325(c) specifically says “entity.” So it would seem that a bankruptcy filer’s employer may not be an entity as defined by the Bankruptcy Code and no other language exists in Section 1325(c) that specifically says employer. This is how the is interpreted or how parties add things to the law to obtain a result they believe is correct. Is the bankruptcy filer’s employer part of the definition of a “person?” Well, the Bankruptcy Code also defines the term “person.” Section 101(41) defines a “person” includes an individual, partnership, and corporation, but does not include governmental unit with some exceptions. Section 1325(c) could and should have both person and entity in the language, but it does not.

So again, how can a Chapter 13 Trustee make the bankruptcy filer’s employer pay the monthly Chapter 13 Plan payment of reorganization? It truly seems that Section 1325(c) applies to all third parties the bankruptcy filer receives monthly income from and income not received on a monthly basis. Most people filing for bankruptcy protection under Chapter 13 do not receive income from a trust, an estate or government unit. It seems Section 1325(c) is for obtaining funds the debtor may or may not receive after confirmation of a chapter 13 plan of reorganization.

What Is The Proper Procedure To Force An Employer To Pay A Chapter 13 Plan Payment?

As mentioned before there is no procedure that I am aware of that is directly on point to let us know. I will also mention that the practice of forcing an employer to pay a monthly Chapter 13 Plan payment is rare. I will provide my opinion of what the proper procedure to force an employer (“entity” or “person”) to pay a monthly chapter 13 plan payment is later. It is just my opinion though. It seems to me at a minimum a chapter 13 debtor and their bankruptcy attorney should be given notice and an opportunity to be heard on the matter before the debtor’s employer is contacted or just receives an order in the mail to pay a certain amount to the chapter 13 trustee. The issue here is privacy and confidentiality given the bankruptcy filer’s employer usually never actually finds out their employee filed for bankruptcy protection at all. There is really no reason for an employer to ever get notice of the bankruptcy filing since the employee usually does not owe their employer any money. This is almost always the case, so an employer does not get notice of the case. Why would they? There should be a motion filed, a hearing scheduled or any opportunity to object to the requested relief, and proper notice of the requested relief served on the bankruptcy filer and their attorney before any order is served on the bankruptcy filer’s employer or an “entity” as defined under Section 101(15), Section 101(41) and Section 1325(c). Bankruptcy filings are unfortunately a public record. For someone to access bankruptcy records they must have a PACER account and pay $0.10 a page for this public right.

What Has Happened In The Real World To Force Employers To Make Chapter 13 Plan Payments?

I have rarely heard of heard of Section 1325(c) being used to force an employer to pay the monthly Chapter 13 Plan payment directly to the Chapter 13 Trustee each month. It is very rare. In the case I have heard of this process was initiated by a Chapter 13 Trustee only after the bankruptcy filer failed to timely pay the monthly Chapter 13 Plan payment voluntarily as they agreed to do each month. Let me say this again. The bankruptcy filer had every opportunity to pay the monthly Chapter 13 Plan payment in the Chapter 13 Plan they proposed that was confirmed/approved by the Court for their benefit to reorganize their debts. Failure to make plan payments happens though. Even though someone seeks relief from the Bankruptcy Code under Chapter 13 for whatever reason they fail to meet their obligation to pay the monthly Chapter 13 Plan payment each month. In this case the Chapter 13 Trustee merely uploaded an order for the Bankruptcy Court to sign, the Bankruptcy Court signed the order and then the order was served on the bankruptcy filer’s employer. No notice. No hearing. That was it. It would seem this procedure is deficient, but at the same time the reorganization of the bankruptcy filer’s debts are what the bankruptcy filer wanted and obtaining the monthly Chapter 13 Plan payment each month directly from their employer ensures the desired relief is obtained. Once the wages are in the bankruptcy filer’s hands they may or may not spend the money as directed and may or may not actually be able to pay the monthly Chapter 13 Plan payment if an emergency expense comes up like healthcare expenses or a new set of tires to get to work.

The moral to the story is if you file a Chapter 13 bankruptcy reorganization case just pay the monthly plan payment according to the terms of the Chapter 13 plan you propose and subsequently have confirmed by the Bankruptcy Court and you will not have any problems. If you fail to make the monthly Chapter 13 Plan payments the Chapter 13 Trustee administering your case could have your employer pay the Chapter 13 Plan payments directly from your pay check each month whether you like it or not.

Was The Chapter 13 Petition and Plan Filed in Good Faith?

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In a Chapter 13 reorganization case there are a number of requirements that a Chapter 13 Plan must meet to be confirmed or approved by the bankruptcy court. Section 1325, Confirmation of Plan, of the Bankruptcy Code provides the requirements that must be met. Section 1325(a)(3) and 1325(a)(7) provide the bankruptcy petition and chapter 13 plan must be proposed in good faith. This issue has been framed as a petition or plan is in bad faith. What you are trying to prove though is lack of “good faith.” Prove that the petition or plan were not filed in good faith. The word bad faith does not appear anywhere. The term “good faith” is not defined by the Bankruptcy Code so case law is all we have to go on.

Good Faith Pursuant to Section 1325 of the Bankruptcy Code

Again, the debtor will argue the petition and plan were filed in good faith. Lack of good faith can be shown by considering: (1) whether the debtor misrepresented facts in his/her petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his/her chapter 13 petition or plan in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor only intended to defeat state court litigation; and (4) whether egregious behavior is present. See Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999) (internal quotation marks and citations omitted); see also Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1132 (9th Cir. 2013).

Mendez, Appellant v. Harwood, Appellee

In a recent decision by the Ninth Circuit Bankruptcy Appellate Panel the issue of good faith based upon an objection to confirmation filed by judgment creditor Ronald Mendez. According the court records, Mr. Mendez was a former client of the bankruptcy filer Sterling V. Harwood. Mr. Mendez paid Mr. Harwood a total of $18,000. At some point Mr. Mendez was dissatisfied with Mr. Harwood’s services and requested his money back. Mr. Harwood refused and from prison Mr. Mendez sued Mr. Harwood in Santa Clara Superior Court for breach of contract and fraud. Mr. Harwood did not respond to the lawsuit and a default judgment was entered against him for approximately $26,000. After five months Harwood tried to have the default judgment vacated for improper service of the summons and complaint. The Superior Court of California ruled Harwood’s motion to vacate the default judgment was not timely and that personal service of Harwood was proper. The default judgment stood.

Harwood’s Chapter 13 Bankruptcy Cases

Mr. Harwood filed a skeleton Chapter 13 bankruptcy petition to stop garnishment of his wages to satisfy the state court judgment of Mr. Mendez. A skeleton petition describes the filing of the basic documents to start a Chapter 13 bankruptcy case. The rest of the petition must be filed within 14 days or the case will be dismissed. There are almost no successful Chapter 13 reorganizations without the assistance of bankruptcy lawyers. Mr. Harwood’s first case was dismissed.

Harwood’s Second Chapter 13 Bankruptcy Filing

This first case was dismissed for failing to complete the credit counseling course or complete the bankruptcy petition. After retaining a bankruptcy attorney Mr. Harwood filed a second Chapter 13 bankruptcy case. To be fair Mr. Harwood has plenty of reasons to reorganize his debts. In addition to the Mendez judgment for $29,000, Mr. Harwood was behind on this mortgage payments and needs to obtain a loan modification to keep the his home, he is also behind on his property taxes, he has another judgment entered against him in San Mateo Superior Court totaling $5,837.90 owed to another attorney, Donald S. Tasto, Esq. Attorney Tasto unfortunately passed away while Mr. Harwood’s second bankruptcy filing was pending. Mr. Harwood also has $112,219.87 in general unsecured debts. Mr. Harwood listed his income from employment as a professor as $3,336 a month and business income of $25,362 a month in Schedule I (total monthly gross income after deductions is $26,452.84) and monthly expenses of $26,286 in Schedule J. With a gross income of over $26,000 a month there is only $166 to make the Chapter 13 Plan payment. Most of Mr. Harwood’s expenses are business related. Mr. Harwood’s wife does not work or have income.

The first filed Chapter 13 Plan proposed to pay $165 a month for 60 months. The only debt being paid through the Chapter 13 Plan are attorneys’ fees of $7,400 and the trustee fee to administer the plan. No actual creditors received any distribution through the first chapter 13 plan filed. There is authority to support an argument that filing a Chapter 13 Plan that pays nothing to creditors was not filed in good faith. This is a litigated issue though. An argument is how can someone reorganize their debts when they are not paying any of their debts back? What debts are reorganized? A Chapter 13 plan that pays nothing to creditors is more or less a Chapter 7 then, a complete discharge of eligible general unsecured debts. So the argument goes the actual reason a Chapter 13 plan like this is filed must be for some improper purpose or unfair manipulation of the Bankruptcy Code.

The First Amended Chapter 13 Plan proposed to pay $165 for 24 months then $365 for the remaining 36 months of the 60 month plan. Total plan payments would equal approximately $17,100 over the life of the plan. Mr. Harwood’s attorneys also increased their attorney fees to $8,800 or about half of the proposed plan payments. The second filed Chapter 13 Plan also proposed to reject an advertising contract with a radio station, avoid the judgment lien of deceased attorney Donald Tasto, Esq., and provide language about seeking modification of their first mortgage on his primary residence. Mr. Mendez objected to confirmation of this plan arguing it was not filed in good faith.

The Third Amended Chapter 13 Plan filed by Mr. Harwood proposed to reduce the plan payments to $165 for 24 months then $360 for the remaining 36 months. The Second Amended Chapter 13 Plan also included the following special provisions: “By April 30th of each year during the pendency of the case, the debtor shall provide the Trustee with a copy of all Federal income tax returns required to be filed; or, if an extension has been obtained, a copy of the extension and the tax return within ten (10) days of filing the return but no later than ten (10) days after the expiration of the extension date The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of his law office in Vietnam and outlines the average monthly income and expenses for the business. The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of the malpractice case against his spouse’s former bankruptcy attorney.”

Mr. Mendez’s Argument For Lack of Good Faith

Mr. Mendez argues the petition was not filed in good faith given Harwood misrepresented the nature of the debt owed to Mr. Mendez. Harwoods’s Amended Schedule F describes Mr. Mendez’s judgment claim as: “Incurred: 2013 Consideration: Alleged breach of contract Debtor disputes any liability to this individual. A default was taken based on improper service.” Mr. Mendez argues that the Santa Clara Superior Court ruled that service was proper and there is no alleged debt, Mr. Mendez obtained a valid judgment against Mr. Harwood. Whether true of not the description of the nature of a debt is a minor issue in the big scheme of things and does not really change the treatment of Mr. Mendez’s claim under the Bankruptcy Code. Minor discrepancies in the petition will not rise to the level of not having good faith. While the description of the claim owed to Mr. Mendez in Schedule F is arguably not correct, the bankruptcy court found that the description was adequate under the circumstances and the description is not evidence of trying to mislead the court or manipulate the Bankruptcy Code.

Mr. Mendez next argues the first filed case and Chapter 13 Plan were not filed in good faith given it was filed for the stated purpose of avoiding wage garnishment and frustrate the enforcement of the state court judgment of Mr. Mendez. This argument is not a good one absent some additional facts. A very high percentage of bankruptcy cases filed involve some sort of state court lawsuit. Filing bankruptcy to stop a wage garnishment, bank levy or foreclosure of a home is perfectly normal. If the state court case was at the eve of trial or some other additional circumstance this argument could work.

The bankruptcy court agreed and held that Mr. Harwood was well within his rights to file for bankruptcy protection under Chapter 13.

Mr. Mendez next argues that Mr. Harwood is seeking to discharge in Chapter 13 his judgment that would not be discharged in Chapter 7 and therefore Mr. Harwood has unclean hands. This is a tough argument given that Mr. Mendez’s judgment for fraud against Mr. Harwood is arguably not dischargeable in both Chapter 7 and Chapter 13 if proven pursuant to Section 523(a) of the Bankruptcy Code. The exceptions to discharge set forth in §523(a)(2), (4) and (6) of the Bankruptcy Code are not self-executing. See Mohsen v. Wu (In re Mohsen), 2010 WL 6259979 at *6 (9th Cir. BAP Dec. 21, 2010). Rather, § 523(c)(1) provides, with exceptions not applicable here, that a creditor must request and receive a judgment that the debt owed is not dischargeable. To have certain types of debts deemed not discharged pursuant to Sections 523(a)(2),(4) and (6) an adversary lawsuit must be filed and a judgment received. Then the debt can be enforced again under state law.

9th Circuit BAP Agrees With Bankruptcy Court

Mr. Mendez lost the appeal given the Ninth Circuit Bankruptcy Appellate Panel could not find error in the bankruptcy courts overruling of Mr. Mendez’s objection to confirmation of Harwood’s Chapter 13 Plan. Based upon these facts anyway the petition and plan were found to be filed in good faith.

Do Not Use A Bankruptcy Petition Preparer To File Bankruptcy

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Who are bankruptcy petition preparer’s? They are hired to prepare the documents necessary to file a bankruptcy petition. Bankruptcy petition preparers are prohibited from giving legal advice or practicing law in any way shape or form. I personally have not witnessed anything good coming from using a bankruptcy petition preparer. In theory the petition preparer just takes the documents from you and prepares a bankruptcy petition. The problem is they cannot discuss exemptions to protect your assets, timing of filing the case and pretty much everything you need to know to complete the process correctly and receive a discharge. Bankruptcy attorneys can provide legal advice to make sure your rights are protected properly. Most attorneys carry malpractice liability insurance also. So you can pay someone $150 who will undoubtedly screw up your bankruptcy case since they cannot do anything but put numbers and letters on paper, or you can pay an experienced attorney anywhere from $1,000 – $2,000 to make sure the process is completed properly. The extra cost is priceless. Just ask bankruptcy filer Edward P. Guidry. See below for what happened in Mr. Guidry’s case due to not using an experienced attorney.

Chapter 13 and Chapter 11 Bankruptcy Petition Preparers Are Not Really Possible Around Here

If you know of a case under Chapter 13 or Chapter 11 that was prepared by a bankruptcy petition preparer in which the case was filed, plan of reorganization approved/confirmed by the court, the plan was completed and the bankruptcy filer received a discharge of their debts please provide me with the bankruptcy case number. At least in the Northern District of California using a bankruptcy petition preparer and expecting to have any type of success in a Chapter 13 or Chapter 11 reorganization is not possible. While Chapter 13 reorganization is a streamlined process compared to a Chapter 11 bankruptcy reorganization, a bankruptcy petition preparer will not be able to guide you through the process. It is actually a legal impossibility in my opinion for a bankruptcy petition preparer to even draft a Chapter 13 or Chapter 11 plan of reorganization given they cannot provide legal advice. I suppose they can just put down numbers and information that the client tells them to. I do not know how that would ever work though. While the Chapter 13 Trustee assigned to the case has duty to all parties involved in the bankruptcy case it is not their job to guide someone through the process from day one. If you choose to file your own Chapter 13 or Chapter 11 reorganization case, please retain the services of an experienced bankruptcy lawyer.

Bankruptcy Petition Preparers Can Only Charge You $150

In the Northern District of California bankruptcy petition preparers can only charge $150 to prepare a bankruptcy petition. Many attorneys charge more than $150 to prepare a skeleton petition and the bankruptcy attorney does not sign the petition or represent the bankruptcy filer in the case. In my opinion attorneys violate Section 110 of the Bankruptcy Code if they do this and charge the bankruptcy filer more than $150. If an attorney takes money from a client to help them file bankruptcy you are either the attorney-of-record in the case or do not take the money. Let us think about this. Why would an attorney that files bankruptcy cases for a living not want to put their name on your petition and be your attorney? Is it because they charged more than $150 for drafting a skeleton bankruptcy petition? Is it because the filing of the case is in bad faith? An artist signs their work right? So can we safely assume that if an artist refuses or chooses not to sign their work that there is something wrong with the work, or they are not proud of the work, or they do not want anyone to know that the art is their work? You get the point. An attorney not signing documents they prepare and charge you for is a red flag. If you are going to file a bankruptcy case for the benefit of the automatic stay there is nothing wrong with that in and of itself. That is a benefit of seeking protection of the bankruptcy code.

Bankruptcy Petition Preparers Cannot Give Legal Advice

This is where I have a huge problem with even allowing bankruptcy petition preparers to exist at all. How can anyone prepare a bankruptcy petition under Chapter 7 or Chapter 13 of the bankruptcy code without asking certain LEGAL questions to the bankruptcy filer? They cannot provide any advice as to the benefits/detriments to filing bankruptcy, when to file, what chapter of the code to file under, what is necessary to complete the bankruptcy and obtain a discharge, advising regarding exemptions to protect assets, what the different types of debts are and how to treat or list them, discussing the effects of bankruptcy at all and more less all the other important issues that need to be addressed BEFORE filing for bankruptcy protection.

Horror Story Resulting From Use of Bankruptcy Petition Preparer

I personally have met with at least 50 people who should not have used a bankruptcy petition preparer. The main problems are usually related to listing assets properly and protection them, and the Chapter 7 statement of monthly disposable income. If you own a home you cannot mess around with filing a Chapter 7 bankruptcy case on your own or with a petition preparer. In the current market of rising home prices that is a good way to have your house sold through the bankruptcy estate for the benefit of those you owe money to. In 2005 Congress amended the Bankruptcy Code and created the Chapter 7 Statement of Monthly Disposable Income (“Means Test”). If your six-month average gross income is over the median income for the number of people in your household you do not automatically qualify to pass the means test. You have to know what allowable expenses can be included in the Means Test to try and pass the Means Test and file a Chapter 7 case.