June 4, 2015

Supreme Court Rules Against Junior Lien Strip Off in Chapter 7

Many people in New York and New Jersey have houses that are “underwater” -- meaning the current value of the house is less than the value of the mortgage. In the Supreme Court case of Bank of America, N.A. v. Caulkett, - U.S. - , No. 13-1421 (June 1, 2015), the Court ruled that in a chapter 7 bankruptcy a debtor cannot “strip off” or void a wholly underwater junior or second mortgage.

By way of example, if the property was worth $300,000 and subject to a first mortgage of $305,000 and a second mortgage of $50,000, the debtor seeking stip off argued he should be able to strip off or void the second mortgage as being wholly unsecured. The debtor argued that based on section 506(d) of the Bankruptcy Code (that provides “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim such lien is void....”), the unsecured second mortgage could be stripped off with the result that the claim of the second mortgage lender would be treated as a wholly unsecured claim.

The Court held, however, that based on its prior ruling in the case of Dewsnup v. Timm, 502 U.S. 410 (1992), this interpretation of section 506(d) was not correct. The Supreme Court found that in the prior Dewsnup case it had already “defined the term ‘secured claim” in §506(d) to mean a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim.”

Notwithstanding the Bank of America decision, lien stripping should still be available in chapter 13 cases involving wholly unsecured second mortgages. This is because the Bank of America decision did not address chapter 13 bankruptcy cases, and because of the Supreme Court’s prior decision in Nobleman v. American Savings Bank, 508 U.S. 324 (1993). In its prior Nobleman decision the Court held that debtors in chapter 13 cases are prohibited by the anti-modification language in section 1322(b)(2) of the Bankruptcy Code from stripping off partially secured junior or second home mortgages. The decision has been interpreted by lower courts as permitting lien stripping of wholly unsecured junior or second home mortgages. Lien strip has been permitted extensively in chapter 13 bankruptcy cases.

The attorneys at Starr & Starr, PLLC, have extensive experience and success in representing debtors in chapter 13 cases in New York and New Jersey.

If bankruptcy is an option you would like to pursue further please contact us at 888-867-8165 or by email at info@starrandstarr.com to schedule a free initial consultation.

© 2015

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May 27, 2015

Supreme Court Wellness Decision Resolves Issue of Whether Parties Can Consent to Bankruptcy Court Jurisdiction

The recent Supreme Court case of Wellness International Network, Ltd. v. Sharif, - U.S. ___ , No. 13-935 (May 26, 2015) resolved the issue of whether litigants in the Bankruptcy Court can consent to have the Bankruptcy Court decide matters that otherwise would need to be decided by the U.S. District Court.

The Wellness decision resolved an issue that remained undecided since the Court’s prior ruling in Stern v. Marshall, 564 U.S. _ , 131 S.Ct. 2594 (2011), as to whether litigants can consent to having a Bankruptcy Court decide a matter which otherwise would need to be decided by a U.S. District Court judge. The Stern Court had found that the Bankruptcy Court did not have authority to adjudicate counterclaims based on state law.

The Wellness Court distinguished the Stern decision as involving a case in which the parties did not consent to Bankruptcy Court jurisdiction.

It is important to note that the Court in Wellness found that consent does not have to be express and may be implied, but must still be knowing and voluntary, and that parties need to be notified of the right to refuse non-Article III adjudication. The Court indicated that it is a good practice to obtain express consent.

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October 17, 2009

Will I Be Able to Keep My House if I File for Bankruptcy in New York - PART II?

A common question we get from our clients and prospective clients in New York City, Nassau. Suffolk and Westchester Counties is whether they will be able to keep their homes if they file for personal bankruptcy.

This is Part II of a two part series on this issue. In Part I we looked at the information we need to answer the question of whether a debtor will get to keep his or home in bankruptcy. In this Part II we will look at different bankruptcy strategies that can be used in different situations.

1. Chapter 7 to Wipe Out Unsecured Debt. For many people considering bankruptcy who own a home, the problem is not that they can’t pay the mortgage, but that all of their debts combined are too much for them to pay. They may have enough to pay their living expenses and the mortgage, but not also make credit card payments. In that situation, assuming that the debtor has equity less than his or her applicable homestead exemption (discussed in Part I), a chapter 7 personal bankruptcy filing may be used to wipe out the unsecured debt. There are specific requirements for chapter 7, and not everyone will necessarily will be eligible for chapter 7. However, even if you own a home there is a still a good chance that you are eligible for chapter 7.

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October 8, 2009

Will I Be Able to Keep My House in New York if I File for Bankruptcy in New York - PART I?

A common question we get from our clients and prospective clients in New York City, Nassau. Suffolk and Westchester Counties is whether they will be able to keep their homes if they file for personal bankruptcy.

This is Part I of a two part series on this issue. In this Part I we will look at the information we need to answer the question of whether a debtor will get to keep his or home in bankruptcy. In Part II we will look at different bankruptcy strategies that can be used in different situations.

1. Value of the Home. This is the critical starting point question. It is always surprising how many people considering bankruptcy are not aware of the current fair market value (FMV) of their home (i.e., house, condo or cooperative apartment). Anyone considering a personal bankruptcy case needs to obtain current and accurate information regarding their home’s present value (FMV). Free online home value estimates (such as zillow.com) are not useful because they will not be a trustee or bankruptcy judge as evidence of value. A Broker’s Price Opinion is a good potential starting point However, the best evidence of current market value is a written appraisal report prepared by a licensed appraiser. In NY the current fee for an appraisal is about $350 - 550 depending on the whether the house is a single family, two family or three family house.

2. Debt on the Home. In addition to the current fair market value of the home anyone considering a personal bankruptcy filing needs to know how much secured debt there is on the home. Secured means that the loan has a mortgage on the property (such as a first mortgage, second mortgage, and/or home equity line of credit). A payoff demand from the lender is the best evidence of the current balance of a loan. In addition, any other liens or encumbrances, such as tax liens or judgment liens need to be considered. If the debtor isn’t sure whether or not there are other liens on his or her home a title report may be needed.

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September 24, 2009

Using Bankruptcy to Stop Wage Garnishment in New York

Many of our clients and prospective clients in Manhattan, Bronx, Queens and other boroughs are facing the difficult situation of a wage garnishment and wonder if a personal bankruptcy filing could help.

Just to review, a creditor with a judgment can garnish the defendant/judgment debtor’s wages. The law permits up to 25% of a judgment debtor’s wages to be garnished in any pay period, not exceeding 10% per year,.

Immediately upon filing a personal bankruptcy petition the automatic stay goes into effect.

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September 18, 2009

What Happens To Personal Injury and Wrongful Death Claims In The The Manhattan Bankruptcy Court?

1. The Bankruptcy Court is a Court of Limited Jurisdiction.

Upon the commencement of a bankruptcy case the automatic stay goes into effect. The automatic stay is a mandatory injunction of the bankruptcy court that prevents to commencement or continuation of litigation against the debtor (person or entity that has filed for bankruptcy).

The bankruptcy court, however, has limited subject matter jurisdiction. This means that there are certain subject matters that the bankruptcy court does not have jurisdiction over. For example, the bankruptcy court does not have jurisdiction to determine criminal, family law or probate matters, among others.

In addition, the statutory grant of jurisdiction to the Bankruptcy Code provides that the bankruptcy court does not have jurisdiction to enter final orders in personal injury or wrongful death matters. A bankruptcy judge has jurisdiction to make findings of facts and conclusions of law based on the record before the court, and based on this the United States District Court in the district where the bankruptcy case is pending has jurisdiction to enter final orders. In this regard a bankruptcy judge’s jurisdiction is similar to that of a United States Magistrate Judge (the underlying reason for this is the distinction made between judges appointed under Articles III and IV of the Constitution).

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September 9, 2009

Will they come search my house or apartment if I file for bankruptcy in New York?

A question that we get from time to time from clients and prospective clients in Manhattan, Bronx, Brooklyn and surrounding counties is whether if they file for bankruptcy some one will come search their house or apartment.

From an attorney perspective this question is always troubling because whether or not someone will actually come search your house or apartment if you file for bankruptcy, the schedules and statement of financial affairs need to be answered completely and truthfully. There are currently many individuals serving time in federal penitentiary who have been convicted of “bankruptcy crimes” -- such as concealing assets in connection with a bankruptcy case.

The bankruptcy trustee has the ability to obtain an order authorizing him or her to search the debtor’s house or apartment with the assistance of the United States Marshall -- and break doors, locks and safes to conduct an investigation. Usually this type of order will be obtained on an ex parte basis -- meaning without prior notice to you to prevent you.

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August 29, 2009

How Much Should I Pay to Hire a Bankruptcy Attorney in New York?

A question many of our clients and prospective clients in Manhattan, Brooklyn, Westchester and surrounding counties have is why the fees some attorneys charge for consumer bankruptcy cases are much less than others?

Experienced and knowledgeable bankruptcy attorneys who specialize in bankruptcy tend to charge fees that are set fairly close to each other. In part this is because the fees charged by bankruptcy attorneys are not a mystery. Bankruptcy attorneys are required by law to disclose the fees charged to their clients on a statement filed with each bankruptcy petition. Bankruptcy attorneys who regularly practice in the Bankruptcy Court often will see these statements in the course of their practice and know what their colleagues are charging. Generally these fees reflect what the experienced bankruptcy attorney believes will be a reasonable and fair fee to cover the anticipated issues likely to arise in the debtor’s case.

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August 22, 2009

Will the Bankruptcy Court Approve my Bankruptcy in New York?

A common question we get from our clients and prospective clients in Manhattan, Bronx, Brooklyn and adjacent counties is if the Bankruptcy Court/Bankruptcy Judge will “approve their case”.

In a typical personal bankruptcy case you will not encounter a bankruptcy judge. There will not be a hearing held in the Bankruptcy Court for the Judge to evaluate your bankruptcy petition and approve it or deny it.

In the typical non-business consumer bankruptcy case your only personal contact with the “bankruptcy system” will be at the meeting of creditors at which the chapter 7 trustee or chapter 13 trustee (depending on which chapter of bankruptcy you file) will ask you questions about your income, assets, debts and financial history. However, the trustee is not a bankruptcy judge. He or she does not have the power to “approve” or “disapprove” your case. A denial of discharge or dismissal of a personal bankruptcy case can only be done by a bankruptcy judge. However, a trustee can bring a motion seeking to deny discharge or dismiss a bankruptcy case in appropriate cases.


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August 15, 2009

Do I get to keep my home in New York in bankruptcy?

Whether a debtor gets to keep his or home in a bankruptcy case depends on a number of factors, such as whether or not there is equity in the house, how much of a homestead exemption the debtor is able to claim, if there is a mortgage -- whether the debtor is current with mortgage payments to the lender or not, and finally what chapter of bankruptcy the debtor files (i.e., Chapter 7 or Chapter 13).

For further information regarding chapter 13, please review our prior Blog posts
( Chapter 7 or Chapter 13 Bankruptcy Filing in New York? ), ( New York Chapter 13 Bankruptcy Eligibility Requirements and Issues), and ( What are the benefits of chapter 13 (why file chapter 13 instead of chapter 7)?)

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August 4, 2009

What is an Involuntary Bankruptcy Case in New York?

An involuntary bankruptcy case is a bankruptcy case started against a debtor by its creditors. The debtor can be either an individual or a business entity. The creditors file a petition with the bankruptcy court and then if the debtor -- if he, she or it doesn’t want to be in bankruptcy -- can challenge that the requirements for an involuntary bankruptcy are not satisfied.

If a debtor has more than 12 creditors, and most debtors will have more than 12 creditors,
an involuntary bankruptcy requires 3 or more petitioning creditors that don't have contingent claims, or claims that are subject to dispute as to liability or amount, totaling at least $13,475. So one creditor alone holding a judgment can't file an involuntary bankruptcy against a debtor. It is usually a good idea to have more than 3 petitioning creditors so that if the validity of any creditor's claim is challenged, such as that the claim is subject to bona fide dispute, there are still additional petitioning creditors with valid claims.

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July 30, 2009

What Is "Poundage" and What Does It Have to Do With Judgments in New York?

When a creditor obtains a judgment against a debtor in New York the judgment creditor will typically seek to enforce the judgment and recover money to satisfy the judgment. This topic is covered in prior Blog posts and on the Frequently Asked Questions (FAQs) on our web site.

A common method of enforcement of a judgment is by a writ of execution against the judgment debtor’s bank account or a wage garnishment. This is accomplished with the assistance of a New York City Marshal in New York City or County Sheriff.

When the Marshal or Sheriff receives a judgment for enforcement they add five percent (5%) to the amount of judgment as their fee. This statutory fee is called “poundage”. For each $1 the Marshal or Sheriff recovers from the judgment debtor they cut 5¢. However, the total amount of the judgment is also increased by 5% to account for poundage.

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