Bankruptcy Filing Fees Increase on June 1, 2014

The Bankruptcy court currently charges $306 in total fees to file for Chapter 7 Bankruptcy, and $281 in total fees for Chapter 13 Bankruptcy.  These fees include the filing fee, administrative fee and a trustee surcharge. A notice was just sent that the Bankruptcy court filing fees are increasing as of June 1, 2014.

After June 1, 2014, the Bankruptcy Court will charge the following fees to file for Chapter 7 Bankruptcy:

Filing Fee of $335.00, plus
Administrative Fee of $46.00, plus
Trustee Surcharge of $15.00
TOTAL FILING FEE: $396.00

After June 1, 2014, the Bankruptcy Court will charge the following fees to file for Chapter 13 Bankruptcy:

Filing Fee of $310.00, plus
Administrative Fee of $46.00, plus
TOTAL CHAPTER 13 FILING FEE: $356.00

Other fees that will also increase on June 1, 2014 are the filing fees for:

• Chapter 9: $1717
• Chapter 11: $1717
• Chapter 12: $275
• Chapter 15: $1717
• Adversary Proceeding: $350

IMPORTANT NOTE: The above fees are in addition to any attorney's fees and/or fees for the preparation of the Bankruptcy Documents, appearance at a Section 341 Creditor's Meeting, or representation in Bankruptcy Court. Any fees for legal services must be agreed to in writing between you and your attorney prior to the commencement of any bankruptcy proceeding.

What is the difference between Chapter 7 and Chapter 13 bankruptcy?

Generally speaking, a Chapter 7 Bankruptcy involves a total liquidation of the debtor’s assets (although the debtor may keep certain allowable exempt assets), and any non-exempt assets are used to satisfy the debtor’s unpaid debts.  Any remaining dischargeable debts are discharged, meaning they are no longer owed.  A Chapter 7 case places no limits on the amount of debt that may be discharged; however, there are income qualifications in order to be eligible for Chapter 7 as a result of the 2005 changes to the Bankruptcy law.

A Chapter 13 case places no income restrictions on the debtor, so if you cannot file Chapter 7 because you do not pass the means test, you can likely file Chapter 13.  Chapter 13 begins much like a Chapter 7 case, but after the liquidation of non-exempt assets, if any, the debtor will pay a certain amount based on his available income and after deduction of living expenses to the U.S. Trustee, who will distribute payment to creditors on a pro-rata basis.  The debtor will make monthly payments for 3-5 years, depending on certain factors, and then, as long as the debtor makes payments every month, the remaining unpaid portion of most debts will be discharged (though some debts, such as student loans may still be owed even after completion of the plan).

Chapter 13 has the benefit of permitting the debtor to spread out the repayment of certain debts over a 3-5 year period that would be otherwise non-dischargeable, such as tax debt, or student loans.  Additionally, the debtor could use Chapter 13 to avoid foreclosure and pay back mortgage arrearages over the term of the plan, which is helpful in cases where the lender is demanding a high “cure” amount to voluntarily get a house out of foreclosure.

Bankruptcy & Litigation Series: #7 Foreclosures and Short Sales

Foreclosures are down for the sixteenth straight month in Massachusetts (Source: Massachusetts Real Estate: Foreclosure Activity down yet again).  Whether you credit government intervention programs, improvements in the economy, or something else, this is good news for most people.  However, not everyone will be able to avoid a foreclosure of their property.

Homeowners encounter serious problems when they cannot pay (and have not paid) the mortgage especially if they have negative equity in the property (meaning that the mortgage is more than the fair market value).

Whether you took on a mortgage payment that you could not afford - i.e., purchased "too much house" - or some other temporary situation has impacted your finances such as an unexpected medical expense, loss of a job or other significant interruption in income, the bank will begin threatening foreclosure when you get behind on payments.  At this point, you must weigh your options.

If you can afford your mortgage payment and have just gotten behind then you may be able to work out a mortgage modification directly with your bank, but if they are not willing or able to work with you then bankruptcy can forestall a foreclosure proceeding.  In a Chapter 7 bankruptcy, you will have to pay any mortgage arrears if you want to keep the property, but the foreclosure will likely be delayed partially during the process.  In a Chapter 13 bankruptcy, the mortgage arrears can be included in your payment plan so long as they will result in a full payoff of the arrears by the end of the plan.

If you can't afford the payments, and your financial situation does not permit a mortgage modification, then your options may include bankruptcy, short sale, or foreclosure, or some combination of those.

Short Sales:

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Borrowers are able to mitigate damage to their credit history, and partially control the debt. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer. The borrower must work directly with the lender to seek approval of the short sale by the bank, obtain a purchaser, and complete the transaction before any foreclosure proceedings are completed. (In some cases, the bank may have initiated foreclosure proceedings, in addition to contemplating consent for the short sale.) Timing is critically important, and the debtor is an important part of the short sale process.

However, if the individual does not then pay off the deficient portion of the mortgage (the unpaid portion of the mortgage after the short sale proceeds were applied to the balance), the lender can take further legal action against the debtor to collect the unpaid portion of the mortgage, which may include trustee process attachments, garnishments, or seizure of other assets, depending on the debtor's other property. The debtor may, after the short sale is complete, file for Bankruptcy upon completion of the short sale to discharge any deficiency and extinguish any further liability to the lender.  If the homeowner is already in bankruptcy, they will need the trustee or court's approval to transfer the property in a short sale.

Foreclosure and Bankruptcy:

A final option is to simply file for bankruptcy, and indicate that the debtor's intention is to surrender the property to the bank. Procedurally, the Bankruptcy case will progress through the Bankruptcy Court, and eventually the secured lender will seek permission from the Bankruptcy Court to be relieved of the automatic stay protections, and begin foreclosure proceedings. Regardless of whether the foreclosure auction is completed by the bank before or after the debtor's discharge (meaning they no longer owe certain debts, including the mortgage debt), any deficiency from the foreclosure auction is discharged by the bankruptcy court. From the debtor's perspective, the whole process is completed through the bankruptcy, and does not require any specific participation directly with the lender.

This option provides a swift resolution to the issue of past-due mortgage debt, the pending foreclosure on the property, and any mortgage deficiency all in one process that, in the case of a Chapter 7 bankruptcy, can be completed from filing to discharge in under six months. It is best utilized when the lender will not agree to a short sale, when there is insufficient time to arrange a short sale, or when the debtor's other financial concerns (such as collection actions on other debt) require immediate action. It also does not require the lender's permission or cooperation - provided you qualify for bankruptcy, the Bankruptcy Laws dictate the result, not the lender's business decision.

The credit implications of a foreclosure and bankruptcy (or in the context of bankruptcy) are more detrimental than a short sale followed by bankruptcy, if the debtor wants to obtain a mortgage again in the future.

Do the New Child Support Guidelines affect my Bankruptcy Case?

On Thursday, June 20, 2013 Chief Justice of the Massachusetts Trial Court, Robert A. Mulligan, announced via Press Release the latest revisions to the Massachusetts Child Support Guidelines which will become effective on August 1, 2013.  We have provided a summary of the new Guidelines here.

The new guidelines will result in a typical reduction of between 10 and 15% for most cases, which could also affect bankruptcy cases.

Here are a few of the ways in which a change in child support could affect your bankruptcy case:

1. If you pay child support and are in the process of filing for bankruptcy, the budget your are preparing as part of the required schedules and your means test qualification calculations can both change if your child support changes.
    
2. If you receive child support and are in the process of filing for bankruptcy, your income and your means test qualification calculations can both change if your child support changes.
    
3. If you receive child support and you have already filed a Chapter 7 liquidation bankruptcy but have not received a discharge yet, a change in child support could require amending your filings to update your current income (or you might be asked this question at your Section 341 meeting).
    
4. If you receive or pay child support and you are currently paying a Chapter 13 bankruptcy plan, your plan payment could be affected by a change in support and you may need to file an amended plan and notify the trustee of the change.

These are just a few of the ways that a child support change could affect a bankruptcy filing, and if you believe that you might be subject to a child support modification you should also discuss this issue with your bankruptcy counsel.

Median Family Income Figures for Chapter 7 Qualification Rise April 2013

Every six months the United States Department of Justice releases new Median Family income figures for each state and territory. These figures are used to calculate a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If a debtor's income is greater than the median income for their state of residence and family size, they many not be able to file a Chapter 7 bankruptcy case.

The Means Test calculation compares the average monthly income (as calculated over the last six (6) months) to the median family income in a debtor's state for a household of their size. If the average monthly income is lower than the median family income for the debtor's state of residence and family size, then they pass the means test and there is a presumption that they may file for Chapter 7 relief.

The Median Family Income for Massachusetts as of November 1, 2012 were as follows:

Family size 1: $54,475 per year
Family size 2: $66,076 per year
Family size 3: $80,822 per year
Family size 4: $101,523 per year

add an additional $7,500 per year for each additional household member.

These figures went down slightly in each category from these figures.

The Median Family Income for Massachusetts as of April 1, 2013 are as follows:

Family size 1: $55,602 per year
Family size 2: $67,443 per year
Family size 3: $82,495 per year
Family size 4: $103,624 per year

add an additional $8,100 per year for each additional household member.

If your income is greater than the median income for your state of residence and family size, you still might meet part (b) of the means test after taking into consideration certain expenses as defined by the Bankruptcy Code and other deductions, including regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health Insurance. If you are subject to this calculation an attorney can help you perform this task.

Click here to learn more about The Means Test or use our Means Test Calculator.

To have an attorney help you with these calculations call 508.655.5980 to schedule a consultation or e-mail us here.

New Figures for Median Family Income Released

It's time for our bi-annual median family income update again. The United States Department of Justice twice per year releases new Median Family income figures for each state and territory. These figures are used to calculate a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size, you many not be able to file a Chapter 7 bankruptcy case.

The Means Test calculation compares your average monthly income (as calculated over the last six (6) months) to the median family income in your state for a household of your size. If your average monthly income is lower than the median family income for your state of residence and family size, then you meet the means test and there is a presumption that you may file for Chapter 7 relief.

The Median Family Income for Massachusetts as of May 1, 2012 were as follows:

Family size 1: $55,185 per year
Family size 2: $66,200 per year
Family size 3: $82,873 per year
Family size 4: $102,194 per year

add an additional $7,500 per year for each additional household member.

These figures went down slightly in each category from these figures.

The Median Family Income for Massachusetts as of November 1, 2012 are as follows:

Family size 1: $54,475 per year
Family size 2: $66,076 per year
Family size 3: $80,822 per year
Family size 4: $101,523 per year

add an additional $7,500 per year for each additional household member.

If your income is greater than the median income for your state of residence and family size, you still might meet part (b) of the means test after taking into consideration certain expenses as defined by the Bankruptcy Code and other deductions, including regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health Insurance. If you are subject to this calculation an attorney can help you perform this task.

Click here to learn more about The Means Test or use our Means Test Calculator.

To have an attorney help you with these calculations call 508.655.5980 to schedule a consultation or e-mail us here.

What to do when you receive a Notice of Bankruptcy? Step 1: Identify the Chapter

If you receive a Notice of Bankruptcy, like the samples shown below, the first step is to identify what chapter the debtor is requesting relief under.  There are multiple types of bankruptcy and each has different rules and requirements.

The title of the Notice identifies the Chapter that the bankruptcy is filed under.  Below we have included samples from the two most common bankruptcies:

A Chapter 7 Notice for a no-asset case:

A Chapter 13 Notice for a payment plan case:

As you can see the title of the Notice identifies whether it is a Chapter 7 or Chapter 13 case.  The notices differ as well in terms of the instructions they may provide because of the differences in these types of cases.  Below we explain a little more about why the type of case matters.  If you would like more information about bankruptcy visit our website.

The most common types of bankruptcy that you will encounter are Chapter 7, 11 and 13.

Chapter 7 Bankruptcy sometimes referred to as "liquidation", is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Chapter 7 is available to both individuals and businesses. Under Chapter 7 the debtor may claim certain property as exempt under the governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. After liquidation of these non-exempt assets, all remaining qualified debts are then discharged and the creditors are out of luck.

Chapter 11 Bankruptcy sometimes referred to as "reorganization", is designed for debtors in financial difficulty who may have the ability to pay their existing debts in part. Chapter 11 is available to both individuals and businesses, though is more typical for businesses. Under Chapter 11 the debtor must propose a plan that results in more payments to debtors than they would get under a liquidation. The plan must be approved by a council of creditors.

Chapter 13 Bankruptcy involves the repayment of all or part of the debts of an individual with regular income. Chapter 13 is designed for individuals with regular income who desire to pay their debts in installments over a period of time. Debtors are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under Chapter 13, the debtor must file with the Bankruptcy Court a plan to repay their creditors all or part of the money they owe, using future earnings. The period allowed by the court to repay the debts may be three (3) to five (5) years. The court must approve the plan before it can take effect.

Our next post will address the following step for identifying what you should do with this notice after you have identified the type of bankruptcy: Are you actually a creditor, or did you receive the Notice for some other reason? 

A Step-By-Step for Bankruptcy Creditors: What to do when you receive a Notice of Bankruptcy.

If you receive a Notice of Bankruptcy, like the sample shown below, you should ensure that you know why you received it and what your rights are.  The first step is to read the Notice.  It contains much of the information you need to know, as well as instructions on what to do if you wish to respond.

Receiving a Notice such as this one, likely means that you are a creditor and the debtor is trying not to pay the debt they owe you.  But you may have remedies if you take action and know your rights.

Over the next series of posts we will help you understand the steps you should take when you receive a Notice of Bankruptcy.  The questions you need answered include:

What kind of Bankruptcy is it (most likely options include 7, 11 and 13)?

Are you actually a creditor, or did you receive the Notice for some other reason?

What are the important dates and deadlines I should keep in mind?

What is your exposure to liability if the debtor receives their discharge?

Should you hire a bankruptcy attorney to help you evaluate your claims?

Once you answer these questions you will be prepared to respond to the Notice of Bankruptcy, appropriately.

US Trustees Release New Figures for Median Family Income

The United States Department of Justice twice per year releases new Median Family income figures for each state and territory.  These figures are used to calculate a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting that the Court dismiss your cases under Section 707(b) of the Bankruptcy Code.

It is ultimately up to the Bankruptcy Judge to decide whether the case should be dismissed. However, if your income exceeds the median family income then a presumption arises under part (a) of the Means Test that you do not qualify for a chapter 7 bankruptcy.

The Means Test calculation compares your average monthly income (as calculated over the last six (6) months) to the median family income in your state for a household of your size. If your average monthly income is lower than the median family income for your state of residence and family size, then you meet the means test and there is a presumption that you may file for Chapter 7 relief.

If your income is greater than the median income for your state of residence and family size, you still might meet part (b) of the means test after taking into consideration certain expenses as defined by the Bankruptcy Code and other deductions, including regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health Insurance.  If you are subject to this calculation an attorney can help you perform this task.

The Median Family Income for Massachusetts as of November 1, 2011 were as follows:

Family size 1: $53,496 per year
Family size 2: $64,174 per year
Family size 3: $80,337 per year
Family size 4: $99,067 per year

add an additional $7,500 per year for each additional household member.

These figures went up approximately $2,000 per category per year on May 1, 2012.

The Median Family Income for Massachusetts as of May 1, 2012 are as follows:

Family size 1: $55,185 per year
Family size 2: $66,200 per year
Family size 3: $82,873 per year
Family size 4: $102,194 per year

add an additional $7,500 per year for each additional household member.

Click here to learn more about The Means Test or use our Means Test Calculator.

To have an attorney help you with these calculations call 508.655.5980 to schedule a consultation or e-mail us here.

New Median Income Figures Released for all Bankruptcy Cases Filed after November 1, 2011

The United States Trustee Program has released new Census Bureau data which is used for means testing calculations regarding Chapter 7 bankruptcy petitions, and for calculating the plan commitment period for Chapter 13 cases. Due to the updated figures, the various standards for the expenses in the "means test" form will change for all bankruptcy cases filed on or after November 1, 2011.

The new figures reflect a decrease in the median income, and will make it more difficult for individuals to file for Chapter 7 bankruptcy. Additionally, the decrease in the median income, coupled with amendments to the National and Local standards may require a longer commitment period for Chapter 13 cases.

In Massachusetts, the new Median Family Income figures are as follows:

Family Size of 1: $53,496
Family Size of 2: $64,174
Family Size of 3: $80,337
Family Size of 4: $99,067

In addition, add $7,500 for each individual in excess of 4.

For a list of the updated median family income figures for other states, as well the updated National Standards and Local Standards is provided here.

If your household income exceeds the median income for your state of residence, other factors are considered for means testing criteria. In addition to updated median income figures, the Department of Justice and Internal Revenue Service have also updated National Standards for Food Clothing & Other Items; National Standards for Out-of-Pocket Health Care Expenses; and Local Standards for Housing, Utilities and Transportation.

While the changes in the Median Income, National Standards and Local Standards have effectively "raised the bar" for new Chapter 7 cases, the changes are not so significant to place bankruptcy out of reach for most individuals and families requiring assistance. If you would like to know more about your options for finding financial freedom, contact Attorney Matthew P. Trask for an initial debt-relief consultation, or call 508.655.5980.

FAQ #28: Can I file Chapter 7 Bankruptcy Even if I Have Filed Before? How many times can I file bankruptcy?

Whether or not you may re-file (and the amount of time that must pass before you may re-file bankruptcy) depends on whether or not you received a discharge under your most recent bankruptcy filing.

If you received a discharge under a Chapter 13 bankruptcy case, then you cannot file for relief under Chapter 7 unless:

1. Six (6) years have passed since the discharge in the Chapter 13 case; or
2. You paid at least 70 percent of your allowed unsecured claims in the Chapter 13 case, and your plan was proposed in good faith and represented your best effort to pay.

If you received a discharge under a Chapter 7 bankruptcy case, then you cannot file for relief under Chapter 7 unless eight (8) years have passed since the discharge in the previous Chapter 7 filing.

If you filed a Chapter 7 or Chapter 13 case that was dismissed because you failed to obey court orders or you voluntarily requested a dismissal and did not obtain a discharge, then you cannot file for relief under Chapter 7 unless 180 days have passed since the dismissal of the previous filing.

Assuming that you meet the above time restrictions for re-filing, there is no limit to the amount of times you can file bankruptcy.

FAQ #23: Why would I choose bankruptcy over debt consolidation or settlement?

Debt consolidation involves getting one loan to pay off multiple smaller loans. The advantages are that the debts are paid off in full, often at little to no damage to credit, and the new loan may have more favorable terms over the old loan, such as a reduced monthly payment, a larger monthly payment (that will insure the loan is paid off quickly) or a lower interest rate.

Consolidating loans takes the logistical hassle in making sure that multiple loans are paid on time and ensures that the debtor only has to make one payment, and gives the debtor the ability to “shop around” for the best deal. However, since debt consolidation requires a new loan, someone with excessive or past-due debt may not be able to obtain a consolidation loan. Additionally, depending on the debtor’s situation, debt consolidation may not provide enough relief, especially if the borrow cannot afford the payments on the new loan.

Debt settlement is the process of attempting to pay your existing debts for less than you owe. No creditor is required to settle a debt, but for financial and practical purposes many companies will compromise the amount owed. If your creditors agree to accept less than you owe, you must usually make a lump-sum payment, which may be difficult. Also, paying a debt for less than you owe has tax consequences – the “forgiven” portion of the debt is considered to be income by the IRS, and, with certain exceptions, you will be required to pay taxes on that income.

Bankruptcy, on the other hand, ultimately involves the discharge of the obligations, meaning that you are not required to pay them back. Bankruptcy also provides other legal protections that may be beneficial to someone needing financial assistance. For example, the automatic stay in bankruptcy is a useful tool in temporarily stopping foreclosure proceedings brought by your mortgage holder(s), as well as halting collection efforts, collection calls and lawsuits filed by your creditors. Click here for more information on chapter 7 and chapter 13 bankruptcy.

FAQ #12: What is the difference between a Chapter 7 and a Chapter 13 Bankruptcy?

Chapter 7 Bankruptcy, sometimes referred to as "liquidation" or “straight bankruptcy”, is designed for people who do not have the ability to pay their existing debts. To prove that you cannot pay your debts, you are subject to a "means test" designed to determine whether the case should be permitted to proceed under Chapter 7. The means test generally looks at the debtor’s gross income from all sources over the past six months, and if it is over the median income for your state, then you cannot file Chapter 7 bankruptcy because the formula has determined you have enough excess income to pay your debts over time. There are some exceptions to the “means test” so you should consult with an attorney to be sure.

At the end of a Chapter 7 Bankruptcy (usually about 6 months) you receive a discharge of your debts and you no longer owe those debts (except for some debts like student loans which cannot be discharged).

Chapter 13 Bankruptcy involves the repayment of all or part of your debts with your excess monthly income. Chapter 13 is designed for individuals with regular income who can pay at least some of their debts in installments over a period of time.

Under Chapter 13, you must file with the Bankruptcy Court a plan to repay your creditors all or part of the money that you owe them, using your future earnings. The period allowed by the court to repay your debts may be three (3) to five (5) years, depending on your income and other factors. The court must approve your plan before it can take effect.

Provided that you have complied with the plan and made all payments required under the plan, at the end of a Chapter 13 repayment plan (3-5 years) you will receive a discharge of the unpaid portion of your debts (except for some debts like student loans which cannot be discharged).

Because a Chapter 13 requires some payments of your debt, it is not usually a person’s first choice. However there are some good reasons to file Chapter 13:

A Chapter 13 is often filed:

1. To stop foreclosure and cure mortgage arrears, allowing someone to keep a house they might lose in a Chapter 7 case;

2. If the debtor is over the means test limit for a Chapter 7 case, but still wants a fresh start debt after 3-5 years;

3. To pay tax debt over time;

4. To protect property from creditors and avoid a Chapter 7 liquidation of assets;

5. To sell property to maximize price, rather than let it go to Chapter 7 auction; and

6. To avoid dischargability problems with creditors that might occur in a Chapter 7 (although the 2005 changes to the Bankruptcy Code have reduced Chapter 13 filing's ability to avoid dischargability problems).

What happens in a Bankruptcy to the property that is not exempt?

The Bankruptcy property exemptions in Massachusetts recently changed to protect considerably more property of individuals from their creditors. When filing for Chapter 7 Bankruptcy this "exempt" property of the debtor is not included in the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts. In simpler language, exempt property is property you get to keep.

But what happens to property that isn't exempt?

If you file for bankruptcy and property that you own exceeds the exemptions then you have technically surrendered that property to the Trustee upon filing. In other words, by asking the Bankruptcy Court to help you with your debts, you have agreed to give them your property as well. The property that is not exempt is considered part of the Bankruptcy Estate and in a Chapter 7 Bankruptcy this property will be used to pay your creditors proportionally to the amount of debt they are owed.

If the non-exempt property is liquid funds (such as a bank account) then you will be forced to pay these funds to the trustee who will then take a percentage for their fees and pay the rest to the creditors. If the non-exempt property is non-liquid, such as a car or jewelry or a house, then the trustee will auction the property and use the proceeds of the auction to pay their fees and pay the rest to the creditors.

What happens at the end of successful Individual Chapter 7 Bankruptcy?

When an individual files for Chapter 7 Bankruptcy, the debtor is essentially asking the bankruptcy trustee to manage the liquidation of any collectible assets and then requesting that the court discharge the remaining dischargeable debt.

The trustee will take any assets of value, which are not exempt, and distribute those assets to the creditors in order of priority. For more information about what types of assets are exempt visit our Exemptions page.

Any unsecured creditors that are left holding claims when the assets run out will be discharged unless they fall into a very limited list of non-dischargeable debts (such as student loans or most income tax debt).

If no objections are filed, then the debtor is issued a discharge, which is an order that prohibits discharged creditors from trying to collect their debts from the debtor. This is the typical end of a Chapter 7 Bankruptcy case, although there are certain objections or audits that can be filed later which could re-open or undo the discharge.

What happens at the end of successful Corporate Chapter 7 Bankruptcy?

When a corporate entity files for Chapter 7 Bankruptcy (liquidation), the business is essentially asking the bankruptcy trustee to manage the liquidation of corporate assets. The trustee will take any assets of value and distribute those assets to the creditors in order of priority.

A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.

Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.

Free 2011 Massachusetts Bankruptcy Handbook

To request your free 2011 Massachusetts Bankruptcy Handbook: A Consumer's Guide to Understanding Chapter 7 & Chapter 13 complete and Submit the Form here to send us an email request now.

Bankruptcy in the United States is permitted by the United States Constitution (Article 1, Section 8, Clause 4), which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." As such, Constitutional recognition of bankruptcy law is amongst the oldest in the United States, predating even the Bill of Rights. Even 224 years ago, the Founding Fathers and the draftsmen of this Country's earliest laws recognized that sometimes people got in over their heads as a result of insufficient planning or factors beyond their control. They understood that it was in the best interests of both debtors and the economy as a whole to provide people with a fresh start in the event someone found themselves with debts they were unable to pay.

Despite the fact that the Constitution specifically permits Congress to enact bankruptcy legislation, there is still a significant cost, both economic and emotional, in seeking the protection of the Bankruptcy Court. So, if you or someone you know is considering bankruptcy, request a free copy of the 2011 Massachusetts Bankruptcy Handbook, which will help you understand what the advantages and disadvantages of bankruptcy are, and whether or not you qualify.

Should I Reaffirm my Mortgage Debt? What about a Second Mortgage?

Addressing mortgage debt is often a primary concern in many consumer bankruptcies. Debtors that decide to continue to pay the mortgage on their current house may be setting themselves up for future financial problems if they have difficulty paying the mortgage, post-bankruptcy. Alternatively, a debtor may be able to discharge the underlying mortgage and surrender the house back to the bank if the payments are not affordable, but is then faced with finding a new place to live. The decision of whether or not to re-affirm comes down to the specific facts of your case and what is a realistic future budget for your household.

Popular mortgage packages offered in the past ten years often featured “jumbo” financing: that is, financing of nearly one-hundred percent of the purchase price of the home. In many cases, this was done with a primary traditional mortgage, which financed approximately 80% of the purchase price, then a second mortgage or home equity line of credit that financed the balance.

Today, with the decline in home prices, many borrowers find themselves owing more on their homes than they are worth; in extreme cases, the second mortgage may be completely unsecured because the home is worth less than the balance of the first mortgage, without even adding in the balance of the second. In some cases, it is possible to “strip off” an unsecured second mortgage in bankruptcy, leaving the borrower with only one mortgage to pay. It is generally accepted that in Chapter 13 bankruptcy, a second mortgage can be avoided, and treated as unsecured debt.

Although, most attorneys believed that this could be done in a Chapter 7 case, an Eastern District of New York bankruptcy case may suggest otherwise. Here, the Debtors owned a house, where the fair market value was less than the balance of the first mortgage, leaving the second mortgage unsecured. After filing bankruptcy, the bank requested for permission to foreclose on the second mortgage the debtors opposed; arguing that the bank could not foreclose because the second mortgage should be avoided as wholly unsecured and not treated as secured debt.
The Court agreed.

The bank was not permitted to foreclose, and the lien was permanently voided. Judge Eisenberg explained that the well-recognized holdings in Chapter 13 clearly demonstrate that under the Bankruptcy Code it is appropriate to distinguish partially secured liens from wholly unsecured liens, and that there is no reason why in a Chapter 7 context the same language in the Bankruptcy Code should not void the lien of a wholly unsecured claim.

Of course, this is the outcome of a single New York case, and the bankruptcy Judges in Massachusetts are not obligated to follow this outcome. However, given the proper circumstances, it may be an option to consider. If you would like

Kelsey & Trask, P.C. would like to thank Dan Press, Esq., a Maryland Bankruptcy Attorney, for inspiring this article.

I am the Trustee of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

If a debtor is a trustee of a trust, 11 U.S.C. § 541(a) provides that the bankruptcy estate includes the trustee’s powers granted under the trust instrument. The bankruptcy trustee has the power to step into the trustee’s shoes and exercise the trustee’s powers with respect to the trust, but this does not mean that the assets of the trust automatically become assets of the bankruptcy estate; rather, the assets in the trust remain separate from the bankruptcy estate.

However, depending on the terms of the trust, the trustee may have the power to revoke or terminate a trust, the power to amend the trust, or the power to direct distributions of funds of the trust. Therefore, these powers could allow the bankruptcy trustee (acting in place of the original trustee) to obtain access to the trust assets, particularly if the trust assets could be made available to the debtor. Additionally, when the trustee and beneficiary are the same person (and are the debtor in a bankruptcy case), the legal protections of the trust are “merged” into the sole trustee and beneficiary, making the debtor the sole beneficial "owner" for purposes of the bankruptcy code.

I am the Beneficiary of a Trust. Can the Bankruptcy Trustee Take the Trust Assets?

A beneficiary’s interest in a trust may be property of the bankruptcy estate. However, any trust containing spendthrift provisions that make the beneficiary’s interest in the trust non-transferable are protected from the beneficiary’s creditors. 11 U.S.C. 541(c) honors state spendthrift clauses. Therefore, if the trust is properly created under Massachusetts law pertaining to trusts, the bankruptcy code will honor the settelor’s intentions and keep the debtor-beneficiary’s interest in the trust from becoming property of the bankruptcy estate.

Trust beneficiaries should be careful, however. If the settler and beneficiaries are the same, the trust is self-settled, rendering spendthrift provisions unenforceable. Further, if the doctrine of merger applies (described above), the trust will cease to exist and negates the spendthrift protection.