California Bankruptcy Lawyer Blog

The U.S. Supreme Court says that a Massachusetts man lost his right to convert from one bankruptcy chapter to another because he did not reveal all of his assets. In a 5-4 ruling in Marrama v. Citizens Bank of America, the Court reached its decision because Robert Marrama, who runs a flooring company, did not disclose that he had placed a Maine vacation house in a trust. Marrama had listed that the value of his interest in the property was zero. A bankruptcy trustee, who found out about the home, however, wanted to recover the real estate to help pay back Marrama’s creditors. Marrama then tried to change his bankruptcy case from Chapter 7 liquidation to Chapter 13, which lets a debtor pay their debts over a period of time will keeping their property.

Justice John Paul Stevens, in writing for the majority, stated that while honest debtors were entitled to convert their Chapter 7 cases to Chapter 13, a court is entitled to take away that right because of “fraudulent conduct.” Justice Samuel A. Alito, Jr. in his dissent, however, said that the U.S. bankruptcy code was unambiguous in its provision and that the debtor possesses a “broad right” to make the conversion to Chapter 13. Previous to the Supreme Court ruling, a bankruptcy judge had denied Marrama's request to convert to Chapter 13, with a bankruptcy appellate court supporting the ruling.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also called liquidation bankruptcy, allows a debtor to have his or her debts become liquidated. Essentially, a bankruptcy discharge under Chapter 7 frees the debtor from being personally liable for discharged debts while preventing creditors from collecting payments or taking other action against the debtor, such as eviction, foreclosure, or shutting down utilities. A court-appointed bankruptcy trustee then liquidates certain assets owned by the debtor.

In order to qualify for personal bankruptcy under the Chapter 7 bankruptcy code, a debtor must pass the means test- meaning that their current income must be less than or equal to the median in their state. If a debtor does not pass the means test, he or she may have to file under Chapter 13 bankruptcy instead.

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The bankruptcy fraud conviction of John Milwitt, a California man who pretended to be an attorney and stole money from a number of tenants who were about to be evicted, has been reversed by the Ninth U.S. Circuit Court of Appeals. According to the panel, in a 2-1 ruling, even though prosecutors proved that Milwitt deliberately tried to defraud the renters, they were unable to prove that he intentionally defrauded the landlords, which is what he is charged with in the indictment.

Milwitt published a deceptive ad in a phone book, saying that he was with a company named “AP Assistance.” The advertisement attracted the attention of a number of tenants who needed help to defend themselves from unlawful detainer actions. According to witnesses, Milwitt convinced the tenants that he was a lawyer—even though he had never gone to law school—and he told the renters that they were legally allowed to withhold their rent from the landlords. The tenants paid him fees, in exchange for him appearing in court on their behalf. Milwitt would then list them in court documents has having appeared in pro per. He did not represent any of them in court, which led to default judgments in favor of the landlords. Milwhitt had given a mailbox at a public mail service as an address, and this made it impossible for the tenants to immediately find out that he had not appeared in court for them. He filed for Chapter 13 bankruptcy protection for six of the renters—all of them claim that they did not know or even authorize the petitions, which named the six tenants’ landlords as creditors. Because of the petitions, automatic stays were immediately enacted. This prevented the landlords from collecting the rent owed to them.

Milwhitt, Under 18 U.S.C. Sec 157, was indicted on six counts of bankruptcy fraud. According to the indictment, "he fraudulently obstructed the creditors’ legal right to collect back rents, and repossess the properties” by filing the fake petitions. He was found guilty of five of those counts by a jury.

The Ninth Circuit overturned the conviction, saying that the specific intent to defraud the victim or victims—in this case, the landlords—was not identifiable.

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Richard Heltzel, chief executive officer of the U.S. Bankruptcy Court for the Eastern District of California, said he thinks that bankruptcy filings will increase again. The number of bankruptcies filed in the last fiscal year had dropped after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Following the enactment of this law in October 2005, courts in Modesto, Sacramento, and Fresno only took in 8163 cases over the next year—a 79% drop from the year before.

Hetzel believes bankruptcy filings will increase because of a stalled housing market and rising interest rates.

In the Eastern District of California—due to the new bankruptcy law—people who wish to file for bankruptcy must pass a means test in order to file under Chapter 7. If they exceed the median income for this district—$43,107 for a single person or $57,237 for a married couple—they are encouraged to file for Chapter 13 bankruptcy. While Chapter 7 erases debt, Chapter 13 requires that filers repay their debts over a period of time.

Continue reading "California Court Official Predicts More Bankruptcy Filings In 2007" »

The U.S. House of Representatives voted “Yes” on a bill that protects a person’s rights to continue making reasonable charitable contributions, such as tithing, even while under consumer bankruptcy protection.

The bill was sponsored by Senator Barrack Obama (D-IL) and Senator Orrin Hatch (R-Utah). According to Hatch, “this bill clarifies the law so that those who tithe can continue to live their faith while in bankruptcy.

The Hatch-Obama bill, S. 4044, was drafted after a bankruptcy judge ruled that Chapter 13 filers could not tithe while still in the process of repaying their debts under bankruptcy protection. Under this new bill, all individuals regardless of income can continue to tithe to a religious organization or make charitable donations. To tithe is to give 10% of your income first before even paying bills.

Continue reading "Chapter 13 Bankruptcy Filers Can Tithe, Votes U.S. Congress" »

A recent bill passed in the U.S. Senate earlier this fall protects a debtor’s right to tithe to a religious organization, even while this person is under bankruptcy protection. The bill was drafted by Senator Orrin Hatch and Senator Barrack Obama, after New York Bankruptcy Judge Littlefield’s ruling in August that a couple under Chapter 13 bankruptcy could not continue paying their parish $100 a month while they were under this protection before repaying creditors.

Since October 2005, debtors filing for bankruptcy have had to first undergo a means test, and if their annual incomes were above their state’s median income, they could only file for Chapter 13 protection (and repay their debts over a period of time) instead of Chapter 7 (which wipes out most of their debts).

Under a Chapter 13 filing, only certain reasonable expenses are allowed. Anything else must be used to repay creditors. Before the new bankruptcy law went into effect, and under the Religious Liberty and Charitable Donation Protection Act, debtors were allowed to exempt up to 15 percent of their annual income from creditors during Chapter 13 bankruptcy proceedings for tithing and charitable contributions.

The new bill must still be reviewed by the House of Representatives.

Continue reading "Tithing Debate Asks Question Of Whether Chapter 13 Bankruptcy Protection Should Make Room For Religious Donations" »

Just a little over one year after the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect, the number of Chapter 13 Bankruptcy filings has decreased.
For example, According to statistics released by the Administrative Office of the U.S. Courts, Chapter 13 filings fell 19.5 percent to 355,756 in March 2006 from 441,838 in March 2005.

According to the National Foundation of Credit Counseling, however, this does not mean that people are handling their financial affairs better. In fact, there was actually a rush of people who filed for Chapter 7 bankruptcy prior to the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act because there was a possibility that they would not meet the new requirements for filing for Chapter 7 protection.

Initiatives of the BAPCPA include:

•Implementing the new “means test” to determine whether a debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan).
•Supervising random audits and targeted audits to determine whether a chapter 7 debtor’s bankruptcy documents are accurate.
•Certifying entities to provide the credit counseling that an individual must receive before filing bankruptcy.
•Certifying entities to provide the financial education that an individual must receive before discharging debts.
•Conducting enhanced oversight in small business chapter 11 reorganization cases.

Continue reading "According To U.S. Courts' Administration Office, There Are Less Chapter 13 Bankruptcy Filings In 2006" »

Last week, the U.S. Supreme Court heard oral arguments in Marrama v. Citizens Bank of Massachusetts. The case asks the question of whether a debtor can convert their Chapter 7 Bankruptcy filing to a Chapter 13 Bankruptcy filing.

Marrama had initially filed for Chapter 7 Bankruptcy, but he tried to change his filing to Chapter 13 to preserve $85,000 worth of interest in a piece of property. Citizens Bank of Massachusetts opposed the conversion and a bankruptcy court agreed with the bank. Citizens Bank said that by purposely trying to hide the trust that held this piece of property, Marrama shouldn’t be allowed to convert his petition now to save the asset. The bankruptcy panel agreed with the court’s decision, as did the U.S. Court of Appeals for the Fifth Circuit.

Chapter 7 Bankruptcy (also called Liquidation Bankruptcy):
· Cancels the debtor debts; generally, the court will have to liquidate certain assets if it benefits the creditors.
· To qualify for Chapter 7 Bankruptcy, the debtor’s current monthly income (your average income over the last six months before you file) must not be higher than their state’s median income; they must also prove that they cannot pay back at least $6,000 of their debt over a five year period (In California, the median for a single earner is $43,107. The median for a family of four is $70,172).
· Costs $299 in filing and administrative fees, and commonly requires only one trip to the courthouse.

Continue reading "US Supreme Court Considers Question Of When A Debtor Can Convert To Chapter 13 " »