Tag Archives: Chapter 13 Bankruptcy

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.

If You Are Having A Problem With Your Home Loan Payment Call a Bankruptcy Attorney

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One of the most frustrating parts of my job is over and over again talking to people that file Chapter 13 bankruptcy cases to stop a foreclosure or eviction without proper legal advice from an actual bankruptcy attorney. By the time they speak to me there is usually too much water under the bridge for me to get involved and actually obtain them relief under the Bankruptcy Code they are entitled to. I say entitled to because the Bankruptcy Code is the law. You just have to follow it and get relief. Most skeleton Chapter 13 bankruptcy petitions should never have been filed to begin with.

Five Steps To Help Prevent Getting Scammed

These five steps cannot guarantee you will not get scammed, but they will limit your risk to getting scammed, losing your house and paying too much for the services provided to you.

1. Never ever wait until the last minute to start getting information; the problem did not come up overnight, so the solution will not come overnight either….
2. Make sure the person helping you signs the documents filed with the court; not you;
3. Only do business with someone that is local in your area and not hundreds of miles away;
4. Only do business with someone you have actually met in person and they have an office you can walk into if you want;
5. Google the phone number, fax number, email address, name of person or business name you are dealing with … basically Google each and every bit of identifying information you are given . . . most likely someone has already complained about them and Google will find it for you.

The Automatic Stay is a Jewel to be Coveted, Not Abused

The automatic stay is the backbone of the bankruptcy process and is the single most important and precious jewel to be coveted, not abused. Section 362 of the Bankruptcy Code provides the very lengthy law of how the automatic stay is implemented. A general description is the automatic stay stops almost all collection activity by creditors to give the bankruptcy filer breathing room to figure things out and reorganize or discharge their debts according to the Bankruptcy Code. That includes lawsuits, repossession, foreclosure, wage garnishment, levies, phone calls, letter and on and on. The automatic stay is the most powerful tool for a Bankruptcy Attorney to help people or businesses in financial distress. There are many limits in the automatic stay and for purposes of this article I will focus on the people filing their own cases with advice from the wrong people. What I find is multiple bankruptcy petitions filed by people trying to save a house more often than not. The first petition filed for relief they receive an unlimited automatic stay. There are no timing restrictions as long as the case remains open and not dismissed. This is what everyone should want, the bankruptcy case, whether Chapter 13, Chapter 7 or some other chapter of the Bankruptcy Code, to progress properly and the bankruptcy filer is not in jeopardy of the automatic stay not being in place. The single best way to ensure this is retaining an experienced bankruptcy attorney to file your case. If your home is in jeopardy do not trust a realtor or some other non-bankruptcy professional to help you.

Danger of Multiple Bankruptcy Filings

What I see over and over again with bankruptcy filers getting bad information is there case is just dismissed for not filing the proper documents in the beginning or not timely filing the proper documents after the case is filed. What the unscrupulous realtor, attorney or company will do is tell you or give you the basic forms to file a skeleton bankruptcy petition to obtain the automatic stay. That includes the voluntary petition, statement of social security number, creditor matrix and most likely an application to pay the $310 court filing fee in payments. The really horrible people will not even tell you about the application to pay the court filing fee in payments and make you waste the entire $310 even though they know the case will just be dismissed. They know the case will be dismissed because the forms described above are all they are going to help you with. That is it. You will have 14 days from when the court enters an order for you to file the rest of the documents to actually complete the petition. So the bankruptcy filer is now representing themselves and has only filed the basic forms to get the case started and does not know what to do next…… The bankruptcy filer will have paid whatever the unscrupulous person charge, usually well over a thousand dollars or more, plus the court filing fee of $310 and the Chapter 13 bankruptcy case is dismissed usually within three weeks.

If your first case is dismissed for some reason and you file a second case within a year you only get a 30 days automatic stay unless the stay is extended within that 30 days. There is no guarantee the court will extend the automatic stay and if a creditor objects to the extension it is even less likely the automatic stay will be extended. The third case filed within a year gets absolutely no automatic stay unless the automatic stay is imposed. Again, there is no guarantee the court will impose the automatic stay.

Required Credit Counseling Course Completion Prior to Filing a Bankruptcy Case

Another trap that realtors and unscrupulous people do not tell the bankruptcy filer is that they must complete the credit counseling course prior to filing for bankruptcy. The credit counseling only takes a few hours to complete and should cost less than $10.00 to complete. Skeleton Chapter 13 bankruptcy petition after skeleton bankruptcy petition is filed without the bankruptcy filer completing the credit counseling course prior to the filing of the case. I am a Bankruptcy Attorney that has either filed or been involved in literally thousands of bankruptcy cases and I only know of one or two circumstances in which the court allowed someone to take the credit counseling course after the bankruptcy case was filed or waived the requirement entirely. Since 2005 BACPA changes to the Bankruptcy Code, Section 109(h)(1) requires the completion of credit counseling within the 180-day period prior to the filing of the petition. Section 109(h)(3) provides a temporary exemption from that requirement if the bankruptcy filer submits a certification that: (i) describes exigent circumstances that merit a waiver of the requirements of [section 109(h)(1)]; (ii) states that the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in [section 109(h)(1)] during the 7-day period beginning on the date on which the debtor made that request; and (iii) is satisfactory to the court. Section 109(h)(4) provides a total waiver if the Court determined, upon notice and hearing, that the debtor is unable to complete the credit counseling requirement due to incapacity, disability, or active military duty in a military combat zone. If you have in jeopardy of losing your home just complete the credit counseling course before filing the bankruptcy case and do not play around with attempting have the court give you more time or waive the requirement. It is just not worth it.

Do Not Fall For the Mortgage Litigation Scam

The mortgage litigation scam is only a ploy for criminals to get around the laws making it a criminal act to take money upfront to do a loan modification and a ploy to get around only charging you $150 as a bankruptcy petition preparer. I keep writing about this and it keeps happening. I do not know what the solution is. I try and educate people to enforce their rights and apparently they do not take my advice. Or there are just more and more of these unscrupulous people replacing the ones that go away. If you missed mortgage payments and owe thousands and thousands of dollars because you did not make the mortgage payments rarely are there issues for you to litigate. Especially if you are a consumer and this is regarding your home. We keep finding people in the Bay Area doing business with businesses in Southern California to litigate mortgage issues that appear to be purely scams. If you are litigating a mortgage problem that is legitimate you should not be directed to file a skeleton bankruptcy petition that you sign and file yourself. That makes no sense. When an attorney takes your money to do something they are supposed to sign and file the documents on your behalf because they are representing you and take on the liability for their work. That is how it is supposed to work. Also, why do business with someone that is hundreds of miles away that will most likely never give you your money back when you figure out it was a scam? Are you going to sue them for the $1,000 – $4,000 you gave them already? I seriously doubt it and I have yet to see it.

What Not To Do If You Know You Will Receive A Significant Inheritance When Filing Bankruptcy

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The definition of property of the estate under Section 541 of the Bankruptcy Code is very broad. So if you know you are going to get a significant inheritance why file bankruptcy? Like everything I guess “significant” could mean something different depending upon the circumstances. If you only have $50,000 in debt and know you will receive $100,000 from someone’s estate that has already passed, that is a significant inheritance in my opinion. An argument could be made for still filing for bankruptcy protection, but be careful. The inheritance is part of the bankruptcy estate, must be disclosed and held for the benefit of your creditors if you file bankruptcy. The following is a rundown of what not to do if you know you will receive a significant inheritance when filing bankruptcy. This Ninth Circuit Bankruptcy Appellate Panel case deals with what happened to a debtor that received a significant inheritance right before filing for bankruptcy protection in the Bankruptcy Court for the Southern District of California. See: Jason Scott Brown v. Thomas H. Billingslea, Jr., Chapter 13 Trustee; 9th Cir. BAP No. SC-14-1388-JuKlPa. After discussing the initial Chapter 13 bankruptcy filing and then Mr. Brown’s appeal, this article concludes with what is currently taking place after this appeal (spoiler alert) in the Chapter 7 case. What did the Chapter 7 Trustee do upon conversion for the benefit of Mr. Brown’s creditors?

In this case the debtor, Jason Scott Brown, filed a Chapter 13 Bankruptcy petition on December 13, 2013, three days before the closing of the sale of a property he inherited when his father, Herbet D. Brown, who passed away July 20, 2012. The sale of the inherited property closed on December 16, 2013, and Mr. Brown received $65,812 in proceeds. I do not really know why Mr. Brown filed for bankruptcy knowing he was entitled to over $65,000 from the sale of the property. I will not begin to speculate because there may be a very legitimate and reasonable reason why. I just do not know what it is. What I do know is what happened next in his Chapter 13 bankruptcy case. Mr. Brown represented in his Schedule B that he was only going to receive $2,500 in inheritance and his Schedule F listed $33,499 in general unsecured debts. Also upon receiving the probate funds Mr. Brown did not amend his schedules.

At the Section 341 meeting of the creditors the Chapter 13 Trustee and Mr. Brown entered into a pre-confirmation modification of the Chapter 13 Plan requiring Mr. Brown to turn over to the trustee for the benefit of his creditors $3,224 in probate proceeds within 45 days of receiving the funds. Why $3,224 instead of the $2,500 he listed in this schedules is unknown. At some point the Chapter 13 Trustee found out about the actual amount of the proceeds Mr. Brown was receiving from the sale of his deceased father’s house via probate. In April 2014 the Chapter 13 Trustee moved for dismissal of the case and objection to confirmation arguing that $37,569 should be turned over to the trustee for the benefit of unsecured creditors.

The Chapter 13 trustee’s objection to confirmation included documents from the probate proceeding and sale of the house. Again for some unknown reason Mr. Brown’s brothers assigned him their beneficial interest in the inheritance from their father’s estate on August 7, 2013. At some point in May 2014, Mr. Brown changed Bankruptcy Lawyers and immediately amended his schedules to allege his share of his father’s estate was only $12,372 and fully exempt from creditors. Mr. Brown alleged that his three brothers were each entitled to 25% of the inheritance. After some more legal wrangling the Chapter 13 Trustee also requested the case be converted to Chapter 7 given Mr. Brown did not disclose the inheritance and this was an abuse of the bankruptcy process. See: Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764, 767 (9th Cir. 2008).

In another strange turn of events, Mr. Brown’s Bankruptcy Attorneys on his behalf on June 17, 2014, filed a status report telling the court that Mr. Brown misunderstood that the inheritance was property of the bankruptcy estate. Therefore to make it right Mr. Brown would pay 100% of his unsecured debts in the Chapter 13 Plan after objecting to a claim of a creditor. See section below about the Chapter 7 case regarding this objection to claim.

At the hearing on the Chapter 13 Trustee’s objection to confirmation on July 8, 2014, Mr. Brown informed the court that his part of the inheritance was put into his business and the rest of the inheritance as paid in CASH to two brothers and by check to a third brother. At this hearing the Bankruptcy Court noted that given the source of payment for creditors, the inheritance was gone, continuing to pursue Chapter 13 reorganization was not in good faith. The Bankruptcy Court also found based upon the facts that cause existed to convert the Chapter 13 case to Chapter 7 so that a Chapter 7 Trustee could seek return of the inherited funds via fraudulent transfer or transfer avoidance powers for the benefit of creditors. Mr. Brown timely appealed the conversion of his case to Chapter 7.

Cause To Convert The Case To Chapter 7

On appeal the Ninth Circuit Bankruptcy Appellate Panel found the Bankruptcy Court’s finding of cause was not clearly erroneous. The Ninth Circuit BAP also noted that Mr. Brown’s appeal focused on the fact that Mr. Brown proposed a 100% Chapter 13 Plan and not that the Bankruptcy Court’s findings were erroneous. Also cleverly noted is that Mr. Brown never actually filed an amended plan or motion to modify the confirmed chapter 13 plan to pay creditors 100%. Mr. Brown only orally alleged he would propose a 100% chapter 13 plan upon objecting to a creditor’s claim. If successful with the claim objection Mr. Brown “believed” he would be able to pay unsecured creditors 100%. How could this be possible though? Mr. Brown’s income was only social security and was not sufficient to fund a 100% Chapter 13 Plan and he used and gave away all of the inheritance . . . . so.

The 9th Circuit BAP also noted that Mr. Brown’s case was pending for seven months and Mr. Brown could have paid all of his unsecured creditors in full with the inheritance and did not even though the Chapter 13 Trustee requested him to turn over the inherited funds. Mr. Brown instead used the inheritance for his business and paid the inheritance to his brothers. Mr. Brown’s creditors suffered prejudice from the loss of the money.

Conversion of the Chapter 13 to Chapter 7

A case can be converted to Chapter 7 for cause, including the failure to make Chapter 13 Plan payments. In Mr. Brown’s case he did not pay the Chapter 13 Trustee the $3,224 of the inheritance he agreed to turn over in the pre-confirmation modification agreement he signed. Section 1307(c)(4) applies to debtors when Chapter 13 Plan payments commence and then the debtor pays less than what the Chapter 13 Plan on file requires. See: In re Mallory, 444 B.R. 553, 558 (S.D. Tex. 2011) (citing In re Jenkins, 2010 WL 56003, at *2 (Bankr. S.D. Tex. Jan. 5, 2010). Mr. Brown argued he did not turn over the $3,224 on advice of this counsel.

Lack of Good Faith

The Bankruptcy Court found two factors of lack of good faith by Mr. Brown: (1) that Mr. Brown misrepresented facts in his petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his petition or plan in an inequitable manner, and (2) there was a presence of egregious behavior. In response Mr. Brown argued he never misrepresented facts in this petition or plan and he disclosed the inheritance to the court. The Ninth Circuit Court of Appeals discussed two cases: (1) Marrama v. Citizens Bank of Mass., 549 U.S. 365, 368 (2007) and (2) In re Rosson, 545 F.3d at 771; Levesque v. Shapiro (In re Levesque), 473 B.R. 331, 336 (9th Cir. BAP 2012).

In Rosson the debtor communicated to the Bankruptcy Court that he was going to receive a large arbitration award to fund his Chapter 13 Plan. When Rosson received the award he did not turn over the funds to the Chapter 13 Trustee and the Bankruptcy Court found Rosson was rebelliously horsing around with bankruptcy estate assets and therefore converted the Chapter 13 case to Chapter 7. Rosson then tried to voluntarily dismiss his Chapter 13 case and the Bankruptcy Court denied the motion. The decision was affirmed upon appeal.

In Marrama the debtor filed a Chapter 7 bankruptcy case and allegedly misrepresented the value of a piece of real property in Maine and denied transferring the property into a trust for no value during the year prior to filing Chapter 13 to protect the property from his creditors. After the debtor admitted to the above improprieties he requested conversion to Chapter 13. His main creditor objected saying the conversion was in bad faith. In Marrama the debtor argued the information provided incorrectly about the Maine property were due to scrivener’s error and that now that he is employed he was eligible to proceed under Chapter 13. The Bankruptcy Court denied conversion to Chapter 13.

Mr. Brown on appeal tried to argue his facts are not like those in Rosson or Marrama. The 9th Circuit BAP was not convinced. They provide the following in support of a finding of bad faith:

– Mr. Brown’s failure to provide an accounting of the inheritance funds was bad faith;
– Mr. Brown’s explanation for disbursing the funds to his brothers, but found that his explanation did not justify his actions when the Chapter 13 Trustee had made demands on Debtor to place the funds in Trustee’s lockbox account or deposit the funds in his counsel’s client trust account;
– Evidence showed that Mr. Brown already had the proceeds from the sale of his father’s house at the time he filed his schedules but Mr. Brown disclosed that he anticipated receiving only $2,500 from the probate estate. There is no explanation in the record from Mr. Brown as to how he came up with the $2,500 number;
– Mr. Brown claimed his brothers were entitled to 75% of the inheritance but his brothers had filed waivers of their beneficial interests with the probate court.

Best Interest of Creditors

Another factor of consideration is the best interest of creditors when converting or dismissing a case. Mr. Brown argues that now that there are no inheritance funds to distribute to creditors the case should remain a Chapter 13 case and allow Mr. Brown to pay creditors via the Chapter 13 plan. The Bankruptcy Court correctly originally noted Mr. Brown’s income was not sufficient to fund a 100% Chapter 13 Plan and the inheritance was gone. On appeal the Ninth Circuit Bankruptcy Appellate Panel noted there was no court order allowing Mr. Brown to dispose of the inheritance. Under Section 348(f)(1)(A) Mr. Brown argues that the inheritance has been eliminated from the bankruptcy estate therefore making the Chapter 7 case a “no asset” case.

This is a strange argument given that if it were true, then any Chapter 13 debtor could file Chapter 13 after disposing property of the bankruptcy estate fraudulently, then convert to Chapter 7 and creditors would get nothing? Mr. Brown is making this argument in an attempt to remain in Chapter 13 and not face being sued for fraudulent transfer of the inheritance or have his brother’s potentially sued for the turnover of the inheritance funds their received by the Chapter 7 trustee upon conversion. That is the whole point in converting the case really. Chapter 13 Trustee’s traditionally do not seek to avoid fraudulent or preferential transfers of assets. The 9th Circuit Bankruptcy Appellate Panel provides Section 348(f)(1)(A) is not a “safe harbor” for debtors that fraudulently dispose of property of the bankruptcy estate while in Chapter 13. See: Wyss v. Fobber (In re Fobber), 256 B.R. 268, 279 (Bankr. E.D. Tenn. 2000).

Mr. Brown also argues that upon dismissal creditor would be free to collect against Mr. Brown from his potential assets. Mr. Brown is arguing creditors would be worse off with conversion to Chapter 7. More or less Mr. Brown wants to stay in Chapter 13 and try and pay his creditors via the Chapter 13 Plan 100%. The problem again is that Mr. Brown’s income is not sufficient to pay creditors 100% and Mr. Brown never actually filed a motion to modify his plan to pay creditors 100% of the allowed claims. The Ninth Circuit BAP noted there is no evidence that Mr. Brown’s creditors would receive any prompt payment if the Chapter 13 case was dismissed and held there was no error in Bankruptcy Court’s conversion to Chapter 7.

Absolute Right To Dismiss Chapter 13 Case

There kind of used to be an absolute right to dismiss a Chapter 13 case. Section 1307(b) provides: On request of the debtor at any time, if the case has not been converted under section 706, 1112, or 1208 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to dismiss under this subsection is unenforceable. There was a split in authority between different circuit courts whether this was an absolute right. In cases where there was improper conduct of the debtor some circuit courts held a debtor should not be able to dismiss the Chapter 13 case. In other circuits court held that Section 1307(b) does not provide for a good faith or bad faith component but says on request of the debtor at any time the court shall dismiss a case. The 9th Circuit BAP cites In re Rosson, 545 F.3d at 771, 774. The right to convert pursuant to Section 1307(b) is not absolute but a qualified right to prevent an abuse of the process pursuant to Bankruptcy Code Section 105(a). Section 105(a) provides: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

The bankruptcy court is after all a court of equity or fairness. So, it is not fair to creditor or the bankruptcy process to make misrepresentations in your schedules, mislead the bankruptcy court and trustee, or dispose of bankruptcy estate assets without permission of the court and then try and voluntarily dismiss your Chapter 13 case.

So What Took Place In The Chapter 7 Case After Conversion?

Well first of all, something that was not brought up in the appeal, Mr. Brown on September 9, 2014, filed an objection to the claim they mentioned in their argument to stay in the Chapter 13 case and pay creditors 100%. On October 27, 2014, Mr. Brown then filed an amended objection to the claim to correct a problem in the first objection to the claim. Mr. Brown was arguing that if this claim was not allowed then he could pay his creditors 100% and the case should not be converted. The objection is meaningless given the case was converted to Chapter 7 and Mr. Brown lost the appeal. The Chapter 7 trustee will now object to claims if there are grounds to object. I just thought it interesting that Mr. Brown in fact filed the objection to the claim.

On October 14, 2014, Santander filed a motion for relief from stay to request permission from the Bankruptcy Court to repossess Mr. Brown’s 2008 Dodge Caravan for his failure to make the monthly vehicle loan payments. This is a problem when a Chapter 13 case is converted the Chapter 7. In some Chapter 13 cases the monthly vehicle loan payment is paid through the Chapter 13 Plan. Some plans call for payments on the vehicle loan before a Chapter 13 Plan is approved by the court and then the Chapter 13 Trustee makes payments to the vehicle loan company. So in Mr. Brown’s case he either stopped making his vehicle loan payments or while his Chapter 13 case was pending for the last ten months Santander did not receive any payments from the Chapter 13 Plan. On November 5, 2014, the Bankruptcy Court granted the motion for relief from stay giving Santander permission to repossess their collateral, the 2008 Dodge Caravan.

On April 21, 2015, after conclusion of the Section 341 meeting of the creditors the Chapter 7 Trustee, Christopher Barclay, filed his notice of abandonment of property of the bankruptcy estate. One of the arguments on appeal by Mr. Brown was that in the Chapter 7 case there would be no assets to distribute to creditors and the Chapter 7 case would therefore be a “no asset” case so the case should remain in Chapter 13. The filing of the notice of abandonment of property of the estate kind of confirms there are no assets. The Chapter 7 Trustee did not abandon the bankruptcy estates claim against Mr. Brown for transferring the inheritance or Mr. Brown’s brothers that received the inheritance.

Chapter 7 Adversary Proceeding

On May 19, 2015, the Chapter 7 Trustee filed an adversary lawsuit against Mr. Brown and his three brothers for conversion and requesting punitive damages, objecting to Mr. Brown receiving a discharge and/or revocation of discharge pursuant to Sections 727(a)(2(A), 727(a)(2)(B), 727(a)(3), 727(a)(4), 727(a)(5) and 727(c). The adversary lawsuit also seeks avoidance of the post-petition transfer of the inheritance pursuant to Section 548 of the Bankruptcy Code. Adversary Case No. 15-90085-MM. As for timing, remember the appeal was filed on August 12, 2014, and the court entered the order converting the case to Chapter 7 on July 28, 2014. The Ninth Circuit Bankruptcy Appellate Panel entered their decision on October 26, 2015, affirming the bankruptcy’s conversion of the case to Chapter 7. Sometimes an adversary lawsuit will be stopped or stayed due to an appeal being filed. In this case the court held the adversary lawsuit should continue regardless of the appeal.

Motion to Dismiss Adversary Proceeding

On June 19, 2015, the three Brown brothers, Cutis, Kenneth and Christopher filed a motion to dismiss the adversary lawsuit against them alleging that the claims against them of the bankruptcy estate do not exist upon conversion to Chapter 7 pursuant to Section 348(f)(1)(A) of the Bankruptcy Code. Mostly the motion to dismiss alleges deficiencies in the timing of the adversary complaint and its causes of action.

Subsequent First Amended Adversary Complaint

On June 29, 2015, the Chapter 7 Trustee filed a first amended complaint and reply to the Brown Brother’s motion to dismiss the case. On July 27, 2015, the Brown Brother’s filed an answer to the first amended complaint filed against them. On August 4, 2014, the debtor, Jason Brown, filed an answer to the first amended complaint. Again, note the appeal was not decided until October 26, 2015.

So, as of right now the debtor, Jason Brown, and his three brother’s motion to dismiss the adversary complaint were denied by the court and the appeal failed to undo the conversion to Chapter 7. The Chapter 7 case will continue and so will the adversary lawsuit. The discovery deadline, the process of obtaining evidence, is January 21, 2016 and the next status conference hearing in the case is scheduled for January 16, 2016, at 10:00 a.m.

To Sum This Case Up So Far

Mr. Brown received over $50,000 in inheritance and had under $40,000 in general unsecured debts. As a result of choosing to not pay his unsecured creditors in full in the original Chapter 13 case or negotiate settlements with his creditors with lump sum cash payments from the inheritance outside of bankruptcy, Mr. Brown had to fight about the terms of his chapter 13 plan, litigated the conversion of this case to chapter 7 and lost, filed and lost an appeal regarding the conversion to Chapter 7 and is now having to litigate his alleged fraudulent transfer of the inheritance to his three brothers. Mr. Brown is also facing not receiving a discharge at all in the Chapter 7 case and more or less getting nothing from having filed bankruptcy to begin with. To really put the cherry on top the Chapter 7 Trustee is seeking punitive damages to punish Mr. Brown for his alleged misconduct via conversion. By my estimation Mr. Brown, not counting his three brother’s mounting legal fees, Mr. Brown may have incurred over $20,000 in attorneys’ fees and costs already and the adversary lawsuit is not over yet. At what point will the attorneys’ fees and costs exceed the original inheritance received by Mr. Brown?

You Can Get Rid of Your Car Title Loan By Filing For Chapter 13 Bankruptcy

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If you have a title loan and are paying 20% or more in interest for the life of the loan you should really consider filing for Chapter 13 bankruptcy and reducing the percentage rate to around 5%. Yes, only around 5%. So you can get rid of your title loan, pink slip loan or equity loan by filing for chapter 13 bankruptcy. The chapter 13 plan reorganizes the debt owed and more or less gives you a new loan for 36 or 60 months depending upon your circumstances under reasonable terms. We have recently had an epidemic of clients with horrible title loans. The monthly car title loan payments were $1,710 and $2,100 respectfully. The percentage rates were above 80%! The highest cash for cars percentage rate we have ever witnessed in writing was 1,000 % interest. How can this be legal in California? Why have your state legislators not made this type of loan illegal?

What happened to state usury laws limiting interest rates?

First of all California title loan or cash for car loans are operating within a loophole in California usury law limiting interest rates. I previously wrote about the downfall of most state usury laws placing a cap on credit card interest rates. See www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ Our Supreme Court of the United States held in Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978) that a bank could charge interest to customers allowed by the state law where the bank was located, not according to the limitations placed by the usury laws of the state the customer lived in. So what happened? A few states eliminated their usury laws limiting interest rates in that state. Banks then set up shop in the states without usury laws and charged their credit card customers higher credit card interest rates throughout the United States.

If you actually look up California State Usury Laws good luck. There are so many exemptions to the rule why have the rule at all? Title loans or equity loans are perfect example of a loophole being taken advantage of. Just because it is technically legal does that make it right? Our system works better when there is capitalism with a conscience. How can charging 99% interest ever be acceptable?

What is a title loan or cash for cars loan?

A title loan is when you have the pink slip for your vehicle because the vehicle has no outstanding loan but the owner of the vehicle needs some quick cash to take care of some other expense that must be paid soon. The title loan company will take the title to your vehicle and hold it until you pay off the loan. Now they have you and do whatever they want to you. Do you believe or think someone trying to obtain a car for cars or title loan has the money to fight when they are overcharged interest or payments are not properly accounted for? No, there is no recourse in most circumstances. I do not know the percentage of the vehicles repossessed for nonpayment on these title loans, but I have to believe these title loan companies are repossessing a lot of vehicles and making a killing auctioning them off. Or, title loan companies are making a killing charging additional fees for missed payments and stringing the loan out more and more making you pay more and more to get your vehicle title back.

How can Chapter 13 Bankruptcy Help?

There are many ways filing for Chapter 13 Bankruptcy will help you deal with horrible cash for cars or title loans. The first is permanently reducing the interest rate to hopefully around 5%. For example let us say you obtained a title loan about 6 months ago for $4,000 at 99% interest over 36 months. The monthly payment will be about $350.18 a month for 36 months or a total paid of $12,606.48 for the original $4,000 loan received. When filing for chapter 13 bankruptcy, assuming the principal balanced owed at the time of filing is around $3,650, you will pay that principal back at 5% or approximately pay $110 a month in the Chapter 13 Plan for the vehicle loan until the chapter 13 plan is completed in 36 months. And this is all by federal court order. You need to add in bankruptcy attorneys fees and the Chapter 13 Trustee fee to truly calculate the monthly chapter 13 plan payment.

If you really want to get into this topic and how the interest rate can be reduced so much, research topics dealing with the hanging paragraph of Section 1325(a)(9) and its interaction with Section 1325(a)(5) of the Bankruptcy Code. Most bankruptcy lawyers will talk about a vehicle being a 910 day vehicle loan or not.

Second, the amount you pay back on the loan could be reduced depending upon the value of the vehicle and the amount of the title loan.

Third and most important is you will no longer make the payments directly to the car title or equity loan company. Your loan payment will be paid through the chapter 13 plan and by the chapter 13 trustee. This should prevent any funny business with accounting for payments being made and ensure you will get your pink slip back after completing the chapter 13 plan. In the real world you will be at the mercy of the title loan company accounting for your payments properly and being honest about whether you completed the loan and should receive your pink slip back. Take a few minutes and research how many people have problems getting their pink slip back. No doubt someone is getting screwed right now.

Can I Incur New Debts While in a Chapter 13 Bankruptcy?

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When you are in an active Chapter 13 bankruptcy case there are limits to what you can or cannot do. You cannot simply continue doing what you would normally do as if you did not file for bankruptcy. There is a Chapter 13 trustee assigned to your case. This trustee is the person that is responsible for administering your Chapter 13 case. If there are certain things that you want or need to do you will need to ask the trustee or the court’s permission depending upon the circumstances and jurisdiction. To make sure you stay on track and not get in trouble with your Chapter 13 bankruptcy trustee, here are some things that bankruptcy attorneys may advise you on.

Buying a New Car

Generally you are allowed to incur new debt for the purchase of a vehicle. If the vehicle you owned at the time the case was filed breaks down or become unreliable you need a new car. Just because you filed for bankruptcy protection does not mean you cannot have reliable transportation to get to and from work and live life. You will need to notify your bankruptcy lawyer and obtain a letter from the trustee’s office providing permission to incur the new debt. This is a jurisdiction to jurisdiction issue though. So your local Chapter 13 Trustee may have different procedures in place.

Credit Cards

You cannot have or use or open any credit cards while you are in an active Chapter 13 bankruptcy. You need to cut up all your credit cards in your possession when you file for bankruptcy. This makes sense since the Chapter 13 trustee would not be able to administer your estate effectively if they are paying your creditors from your Chapter 13 plan payments while you continue to accrue new debt.

Borrow Money

You cannot borrow money from any sources, usually over $600, without permission from the Chapter 13 trustee. In some jurisdictions you need to obtain permission from the bankruptcy court in order to borrow money. You should consult with a bankruptcy lawyer in your area to determine whether you need permission from the Chapter 13 trustee or the bankruptcy judge to borrow money. Here are some examples: refinancing your mortgage, trying to obtain student loans, financing a car, borrowing from your 401k, borrowing funds to make home improvements. There may be many things you need to borrow money for since life continues moving on after you file your bankruptcy case. The important thing is to contact your bankruptcy attorney first before doing anything so that your attorney can advise you on what you need to do.

Selling Your Home

If you need to sell your current home you need permission from the bankruptcy court in order to do so as it is a major asset in your bankruptcy estate. Failure to obtain permission from the court to sell your home may result in having the entire transaction voided.

The above examples are only a portion of the things you cannot do or need permission in order to do while you are in bankruptcy. The best way to ensure you are not inadvertently violating any rules is to consult with your bankruptcy lawyer before doing anything major that involves your finances while you are in bankruptcy.