39,000 feet overview. Sufficiently scare you to seek a mentor …KCMBA… · 6/27/2018 4 To use TBE...

6/27/2018

1

Foley Law - KC Bankruptcy Bankruptcy Landmines June 2018

39,000 feet overview.

Sufficiently scare you to seek a mentor should you decide to practice bankruptcy.

Provide practice pointers in memorable fashion.


6/27/2018

2

Clients are lucky to remember if they have filed a bankruptcy case

before, let alone what state it is in or the date.

Always check the national PACER database.

If you log into WDMO or KSB the database will only give you the

cases filed in that district. Therefore it is critical you check PACER to

access the national database.

https://pacer.login.uscourts.gov/

NEXT GEN

https://www.pacer.gov/nextgen/

Password at least 8 characters


If you fail to verify the dates of the last filing you could blow up your case and land a malpractice claim.








6/27/2018

3

Ask the questions and verify the

filings through PACER.


If one spouse files bankruptcy and the house is debt

free, you may protect the house by tenancy by entirety.

TBE only applies in Missouri and NOT in Kansas.

TBE can be used for other things such as bank

accounts and vehicles.


6/27/2018

4

To use TBE for the home, the Deed must identify the property as owned

by husband and wife or as a married couple; AND

The debt one seeks to discharge MUST generally be owed solely by that

debtor.

Joint debts may prevent the exemption thereby allowing the trustee to

go after the asset.

Ask if the spouse is alive.

Death terminates tenancy by the entirety.

Clements v. Kolie, 882 S.W.2d 299 (Mo. App. S.D., 1994)


Ask the questions.

IF YOU FAIL TO ASK THE

QUESTIONS, YOU COULD EXPOSE

YOUR CLIENT’S ASSETS AND LAND

A MALPRACTICE CLAIM.


6/27/2018

5

Review 4 years of tax returns!

What you will learn:

Income – Means Test

What is the history of their income?

Martial Status – Income for Means Test and Exemptions

Married or non-married.

If they were married before but are not now, is there child support?

Dependents – Exemptions / Income possibly

How many dependents?

If there are dependents, ask the age and the income of those dependents.

Head of Household – Exemption (HOH)

Are they claiming of Head of Household but they are not qualified?

Pay for more than half of the household expenses

Be considered unmarried for the tax year, and

You must have a qualifying child or dependent.

If they are claiming HOH but do not qualify then it is a false return and they may owe the IRS. That debt must be listed.


Businesses – Asset / Income

What businesses are listed on the tax return?

Real Property – Asset / Income if rental

If they are claiming mortgage interest then there should be real property listed as an asset.

Charity – Deduction Means Test

Do they give to charity? If they are not claiming tithes on their tax returns they may not find

God upon filing bankruptcy, generally.

The Religious Liberty and Charitable Donation Act of 1998

Retirement - Asset

Retirement Accounts will be listed.

Addresses - Exemptions

Are there prior addresses in the last year and did they live outside the State of Missouri in the

last four tax returns?


6/27/2018

6

If you fail to review the tax returns and ask questions about the information listed, you could expose a client’s asset, you could be held liable for not advising the client they have filed a false return, the debtor may be charged with a bad faith claim if they fail to list all the income sources, and more.


Ask the questions about the information in the tax returns.

Failing to review the tax returns and ask the questions could blow up your case and bring a malpractice claim.


6/27/2018

7

Over time, more counties are bringing their records online.

Check the county records of where the debtor has lived in the last 11 years.

Basic County Records

Marriage Certificates

Permits for Construction

Recorder of Deeds

Real Estate Sales

Taxes

Assessment for valuation.

Taxes owed or paid.

Who paid the taxes.


Ask the questions about where the

debtor has lived in the past 11 years.

Failing to review the county records could

result in failing to list certain assets and

therefore the petition is incomplete.


6/27/2018

8

Always do a search of the lawsuit index.

Missouri

https://www.courts.mo.gov/casenet/cases/nameSearch.do

Kansas

http://www.jococourts.org/

Credit Report

Pull them!

Should list all lawsuits that are active at a minimum. I prefer to list all lawsuits that are not satisfied to ensure I have covered everything.

List all creditors that appear in the suits. Just because the case may be dismissed does not mean a debt is not due and owing at the time of filing the bankruptcy case.


Timeline for general judgment collections.

Missouri 10 years – if no revival through action or payment made the judgment is

unenforceable. Garnishment qualifies as a payment. “The payments effected through the garnishment of Polen's wages and recorded by the court clerk prior to September 13, 2004, tolled the statute of limitation.” Crockett v. Polen, 225 S.W.3d 419 (Mo., 2007)

Mo.Rev. Stat. §516.350.1

Judgment presumed paid after 10 years without a revival action or payments.

Kansas 5 years – if no renewal affidavit or if an execution process is not issued, the

judgment goes dormant. K.S.A. §60-2403

2 years – if no motion for revivor is filed, the judgment is void. . K.S.A. §60-2404







6/27/2018

9

Tolling Statutes

K.S.A. §60-2403(c) -The time within which action must be taken to

prevent a judgment from becoming dormant does not run during any

period in which the enforcement of the judgment by legal process is

stayed or prohibited.

“BANKRUPTCY FILING—triggers such tolling”

Associated Wholesale Grocers, Inc. v. Americold Corp., 270 P.3d

1074, 293 Kan. 633 (Kan., 2011)

11 U.S.C. §108(c) – the time period is stayed until the latter of the

expiration of the state statute or the 30 days after discharge.


If you do not check for the lawsuits, the debt may not be identified by your client or through their credit report. If the creditor is not scheduled it may not be discharged.

Kansas and Missouri – innocent failure to list a creditor in a no asset 7 will generally result in that non-listed debt being discharged.

The decision as to whether to reopen a case is within the sound discretion of the bankruptcy court. See, e.g. Beezley v. California Land Title Company (In re Beezley), 994 F.2d 1433, 1435 (9th Cir.1993) - In re Higgins, 161 B.R. 993 (Bankr. W.D. Mo., 1993)

on-scheduled debt will not be discharged in an asset Chapter 7.

The non-scheduled debt may not be discharged in a Chapter 13 especially if the other similarly classified creditors have received a percentage under the Plan.

If you file a case too early you could be adding debt to the debt limit in a Chapter 13 or alerting a creditor the statute of limitations is running.

Student loan judgment for $100,000 filed 9 years and 11 months prior to the filing of the bankruptcy. Let’s presume this is a Missouri judgment with no revival and no payment made.

Filing the bankruptcy too early tolls the statute of limitations. Your filing has taken a debt that would have presumed to be paid in full while placing the creditor on notice the collection deadline is running and extends their time to act.


6/27/2018

10

Ask the questions about lawsuits. Where is the suit, who is suing, and the date.

Failing to review lawsuit information could result in your client not getting a discharge with respect to a particular debt or extending the statute of limitations for a debt close to being presumed paid or being classified as void.


11 U.S.C. §365(d): (1)In a case under chapter 7 of this title, if the trustee does not

assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected.

(2) In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease.


6/27/2018

11

What does that mean?

If the Trustee in a Chapter 7 or the debtor in a Chapter 13 does not assume the lease, the lease is deemed rejected.

Types of Agreements You Should List

Cell Phones

Landlords

Storage

Vehicle Lease

Business agreements such as LLCs


Most of the time when one forgets to assume the agreement, it is not

earth shattering.

BUT…

WDMO there is a case where the Chapter 7 trustee did not assume the

LLC agreement. The case has been discharged and now the partners are

seeking to remove the debtor from the company.

The case law as to whether or not this is possible appears to turn on

whether there are material and continuing obligations of the member

remaining under the partnership agreement.

In re Capital Acquisitions & Management Corp., 341 B.R. 632 (Bankr.

N.D. Ill. 2006). In re Tsiaoushis, 2007 WL 2156132 (E.D. Va. July 19,

2007)

Foley Law - KC Bankruptcy

Bankruptcy Landmines June 2018

6/27/2018

12

Ask the questions about leases and agreements. Do you have a cell, storage shed, gym membership, business agreement, etc…

Flush out what agreements your client has and list them all. Then list whether or not the client wants to assume or reject the agreement. This way your client is covered and the trustee always has the ability to object. It avoids having your client explode and going nuclear on you.


Valuing an asset may be one of the most challenging aspects of filing a bankruptcy.

What value do you use? Garage sale value vs what your client would pay for

the item in the same condition?

What is the debtor’s insurance coverage for the item? Is the insurance replacement value or depreciation

value?


6/27/2018

13

The value of an item is fact driven. Ask:

Age of the item; Condition of the item– kids, pets using the item as a fire

hydrant, smokers, etc…; Mileage or hours is applicable; Repairs needed.

CarMax Obtain a valuation of the vehicle and this will be the floor

value and the NADA clean retail is the ceiling value. We then apply the facts and shoot for a reasonable value

from there.

Appraisal for the home and or estimates of repairs need. Pictures are worth a thousand descriptions. Insurance policy showing the amount of coverage and if

there is a rider.



Always advise the client the value is

subject to approval by the trustee and they

may need to provide further evidence of the

value.

6/27/2018

14

Failure to properly value the asset could result in:

The debtor paying to keep the asset; or

The debtor surrendering the asset to the trustee to sell to pay the debts; or

An order may be issued for the debtor’s attorney to pay the value of the non-exempt item to trustee for failing to properly evaluate.


Ask the questions about the assets and the details about those items. Ask the debtor if they are willing to surrender the items to the trustee to get a discharge. Ask, what do not want to lose in the bankruptcy?

You must seek the truth as to what your debtor owns. Failing to take the basic step in detecting the assets could lead to malpractice.


6/27/2018

15

You may only file a joint case for the debtors IF they are married.

Do not presume they are married, ASK!

Ask if they ever lived in the State of Kansas. Why, because they

may be married through common law.

The parties to the relationship have a present agreement to be married;

The parties to the relationship hold themselves out to be married; and

The parties to the relationship are legally eligible to marry each other.


Failing to identify the correct marital status:

You could expose an asset such as the homestead if you have claimed the

TBE Exemption (Missouri); or

Result in the dismissal of one of the debtors from the case leaving a

bankruptcy on their credit report even though it was dismissed; or

Increasing the cost of filing a separate case which you may have to pay

the additional fees and waive your attorney’s fees.

Ask if they have tied the knot and if you don’t trust the answer, ask for a

marriage certificate , check the county records,

and review the tax returns.


6/27/2018

16

Ask the questions about being married. Are

you now or have you ever been in a

relationship that would be considered a

marriage in this country or any other country?


Trust your gut if the client

starts squirming on this

question. Don’t be afraid

to request proof.

11 U.S.C. §546 (1) the later of—

(A) 2 years after the entry of the order for relief; or

(B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A); or

(2) the time the case is closed or dismissed.

Mo.Rev.Stat. §§428.024 & 428.049 (four years)

Federal Debt Collection Procedures Act (FDCPA), 28 U.S.C. §§ 3001-3308 (six years)

Internal Revenue Code (IRC), 26 U.S.C. §§ 6501, 6502 (10 years)

NOTE: I COULD NOT FIND A LOCAL TRUSTEE WHO HAS USED THE FDCPA OR THE IRC TO EXTEND THE TIME TO

COLLECT.


6/27/2018

17

Ask: Have you made any transfers of cash or an item of $1,000 or more to anyone in the

last 11 years? Boat, plane, vehicle, house, dog, anything?

Then inquire about dates, places, and parties.

Ask if they have made any claims against their insurance or ANYONE else’s insurance in

the last 11 years.

Ask: Did you give ANYTHING to anyone in the past 11 years? You need to ask the same

questions over and over again in different formats to flush out the information.

Review tax returns carefully for assets listed.

Review the county recorder of deeds for property and the county tax records for assessed

items.

Review 7 months of bank statements for large cash transaction or repeated transactions.


Failing to identify all transfers made by your client in the last 10-11 years could explode your client’s case and lead to a malpractice claim.


Just because the local trustee’s have not used the FDCPA and IRC to extend the look back period for transfers DOES NOT mean they will never use these statutes.

Failure to stay informed of how the court views the look back period could explode your case.

Use the trustee questionnaire in your signing and have the client fill out the form. This will hopefully help minimize the surprise answers at the 341 meeting.

6/27/2018

18

Ask the questions about transfers. Keep

hammering home the importance to tell you

about all property that has been disposed of or

transferred in the last 11 years.


It is your responsibility to

stay informed about the

local practices and guiding cases should you

wish to appear in the bankruptcy court.

Social media is fraught with a perilous path of landmines just

waiting for your client to step on and blow up their case.

Humans love to share the silliest things through social media.

This overwhelming urge may lead to your client showing off

that brand new boat or vehicle and how cool they look

behind the wheel. However, the intrinsic force compelling

people to disclose everything on social media fails to kick in

when you ask them what assets they own when preparing

their bankruptcy case.


6/27/2018

19

Yes Virginia, people feel compelled to share.

“Gulliver is now officially paying for my vacation to

Europe this summer.” Gulliver Schools, Inc. v. Snay, 137

So.2d 1045 (Fla. Dist. Ct. App. 2014

Family breached the confidentiality agreement when

daughter made that post to her Facebook page.



In February 2017, 50 cent received a discharge in his Chapter 11 after paying 22 million to his creditors. But he almost exploded his case by posting this pic. To avoid this potential landmine, instruct your client that everyone is watching and once a post is on the Internet, it will live forever.

Now: 'I Forgot' Taking 700 Bitcoins For 2014 Album; Stake Is Now Worth Millions

6/27/2018

20

Ask the question about what have they posted

on social media. Advise in writing that social

media is not private and if they have lied about

any asset it is a bankruptcy crime.


Bankruptcy crimes are punishable by

5 years in the federal penitentiary and

up to a $250,000 fine.

Ask questions. Ask questions. Rephrase the question and ask again.

Check the county records, lawsuit search engines, and a basic Internet

search.

Read the tax returns and bank statements.

Stay present in the moment and actively listen to the answers your client

provides.

Trust your gut.

Don’t be afraid to return a retainer if the case does not feel right.


6/27/2018

21


May your bankruptcy practice bring peace of mind to you & your clients.

Thank you. Rachel Lynn Foley [email protected]

39,000 feet overview. Sufficiently scare you to seek a mentor …KCMBA… · 6/27/2018 4 To use TBE...

Documents

Transcript of 39,000 feet overview. Sufficiently scare you to seek a mentor …KCMBA… · 6/27/2018 4 To use TBE...