To Our Clients & Prospective Clients -- As of March 18, 2020, Starr & Starr, PLLC remains open for business during the current Corona virus (COVID-19) crisis. We remain in communications with our clients by phone, email and our secure file share site. We are scheduling telephone consultations by phone and video chat. At this time the U.S. Bankruptcy Courts, the U.S. District Courts and New York State Court system are all open. We are continuing to file new cases and process our existing cases.

We hope everyone stays safe throughout these difficult times.

When a borrower/debtor owes money to a bank and also has money on deposit with the bank, the bank has a right to setoff the debt owed to it against the funds on deposit. This right is based on the contract with the bank the debtor signed when he or she first opened the account as well as the general common law.

1. How does a bank setoff work?

Setoff means that the bank has the right to offset the debt owed to it against the funds it holds on deposit in any account of the debtor, including checking, savings, money market, and certificates of deposit (CDs). The bank is not required to provide advance notice to the debtor of its intention to exercise its right of setoff. The bank deducts the funds from the debtor’s account and credits them against the debt owed to the bank. Once the bank has setoff the debtor’s funds against the debt owed to the bank this may cause the debtor’s account to overdraft because the account will have insufficient funds to cover outstanding checks after the bank has setoff. For people whose paycheck is directly deposited to their bank, an additional problem is that they can find their funds swept up by the bank on an ongoing basis for more than one pay period.
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A common question we get is “How long will a judgment stay on my credit report in New York.”

A judgment stays on someone’s credit report for seven years. However, even though a judgment may no longer appear on someone’s credit report, that does not mean that the judgment is no longer enforceable. A judgment in New York is valid for twenty years. During that time it can enforced against a judgment debtor’s income and assets.
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The current recession is causing financial hardship for many people. Many people in New York find themselves with no work, or with lower income and hours than they had before. Debt collectors and collection lawyers don’t stop trying to collect debts just because we are in a recession or someone has lost his or her job.

1. Misleading and Extensive Advertising by Debt Settlement Companies.

Many people fall victim to misleading advertising schemes of the so-called debt settlement companies (also known as debt negotiation). They run constant ads on TV and radio with very sympathetic, “common Joe and Jane” type characters who explain how they had financial problems until they call the debt settlement company running the ad. Often, to try to target particular ethnic or immigrant communities, the ads use the patois and words that someone hearing the add from that community would identify with (for example, the ads targeting the Caribbean community have speakers that a listener would identify with as someone from the Caribbean).

2. Failure to Identify that Creditor Participation in Debt Settlement is Voluntary..

The critical thing that the debt settlement companies fail to clearly and prominently disclosure upfront in their advertising and promotional materials is that that participation of creditors (such as banks and credit card companies) in a debt settlement program is entirely voluntary. If a bank or credit card company does not want to participate THERE IS ABSOLUTELY NOTHING THAT THE DEBT SETTLEMENT COMPANY CAN DO TO FORCE IT TO PARTICIPATE. This means that you might hire a debt settlement company and stop paying all of your creditors as they instruct you to do while they propose a debt settlement plan, and in the meantime you may get sued by one of your creditors. This is very common and we see it all the time. We believe this is misleading practice of the debt settlement industry that should be stopped.

Bankruptcy, on the other hand, is not a voluntary process. Bankruptcy is a mandatory process and unsecured creditors (such as they typical credit card debt) don’t get to ignore it and sue you if they want to. But they can in debt settlement Continue reading

Many people considering filing for personal bankruptcy in New York have not hired a lawyer before and are not sure how to select a lawyer. Since they are not familiar with lawyers and how to evaluate and compare one lawyer with another, they focus on the one factor that they understand – the cost. While cost is certainly one factor to consider when choosing a lawyer, it is not the only factor.

1. Bankruptcy Is More Complex Due to the 2005 Changes in the Bankruptcy Law.

In 2005 as a result of credit card company lobbying the Bankruptcy Code was extensively changed by Congress. These changed created new duties for bankruptcy attorneys and made representation of consumer debtors in bankruptcy cases much more complicated than it was before. As a result, those lawyers who only dabbled in bankruptcy stopped taking new bankruptcy cases. Those lawyers who specialized in bankruptcy cases raised their rates to account for the increased cost and complexity of cases after the 2005 changes.
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This is the third in a three part series of postings in which we examine preference claims in detail. In prior posts we discussed what is a preference claim (Help I’ve Been Sued by a Bankruptcy Trustee in New York, What Do I Do Now?) and the new value defense to a preference claim (New Value Defense to Preference Adversary Proceeding Filed in the U.S. Bankruptcy Court for the Southern District of New York). In this post we will look at the ordinary course defense.

The ordinary course defense is intended to permit creditors to continue doing business with financially troubled debtors without fear that a bankruptcy trustee will later be able to recover such payments as preferential.

Elements of the Ordinary Course Defense

The ordinary course defense requires that the creditor/defendant show:

a) payment by the debtor
b) to or for the benefit of the creditor
c) made in accordance with the course of dealings between the parties, or

d) made in accordance with applicable industry practices.

The way this works is as follows – image a company in the business of selling machine parts. The company has a course of dealings with the debtor over a long enough period of time, so that there is an established payment history. The company sells machine parts to the debtor on net 30 day terms. The debtor routinely pays the company’s invoices within 30-40 days.
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This is the second in a three part series of postings in which we examine preference claims in detail. In a prior post (Help I’ve Been Sued by a Bankruptcy Trustee in New York, What Do I Do Now?) we discussed what are bankruptcy preference claims. In this post we will examine the new value defense to a preference claim. In a subsequent post we will look at the ordinary course defense.

Elements of the New Value Defense

One of the potential defenses that a creditor/defendant can raise to a preference adversary proceeding commenced by a trustee or debtor in possession in the U.S. Bankruptcy Court for the Southern District of New York is the ordinary course defense. The elements of this defense are:

a) after receipt of what would otherwise be a preferential payment;

b) the creditor extended new value to the debtor in the form of additional goods or services;

c) for which the creditor/defendant has not be paid by an unavoidable transfer.
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We often get calls and e-mails from people who have been sued by a trustee or debtor-in-possession in a chapter 11 case pending in the United States Bankruptcy Court for the Southern District of New York and United States Bankruptcy Court for the District of Delaware.

1. What is a preference claim?

In bankruptcy cases a trustee has the ability to file a lawsuit in the Bankruptcy Court – called an adversary proceeding – seeking to recover certain payments made by the debtor prior to bankruptcy as preferential.

The elements of a preference claim are:

a) a payment by a debtor to a creditor made within 90 days of bankruptcy filing (1 year in the case of payment to “insiders”);
b) for a debt that was owed to the creditor prior to the time the payment was made;
c) made while the debtor was insolvent; and d) that allowed the creditor to receive a greater recovery than if the payment had not been made and the debtor had instead been liquidated in a chapter 7 bankruptcy case and the creditor received payment as allowed by law in a chapter 7 case.

The first thing to understand about a preference claim is that the trustee (or debtor in possession in a chapter 11 case) is not challenging that you, the creditor, actually provided the goods or services for which you were paid. Instead, the preference recovery provisions of the Bankruptcy Code are intended to promote the Bankruptcy Code’s goal of “equality of distribution” among similarly situated creditors. The bankruptcy law, as drafted by Congress, views it as unfair that you had your invoices paid in the 90 days prior to the debtor’s bankruptcy filing while other creditors did not. The preference avoidance provisions of the bankruptcy law allow the payment to you to be potentially recaptured by the trustee (or debtor in possession in a chapter 11 case).
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We are often contacted by former and prospective clients in Manhattan and other boroughs of New York City, and elsewhere, who are faced with a potential eviction involving a commercial or residential lease and wonder what their bankruptcy options are.

1. Bankruptcy Filing Creates Automatic Stay

A bankruptcy filing by the tenant (whether residential or commercial) creates an “automatic stay.” This is a mandatory injunction that arises by operation of law without the need for a hearing or order of the Bankruptcy Court. The automatic stay operates like a legal “Stop Sign” to freeze a creditor’s efforts to pursue collections, litigation or judgment enforcement. The automatic stay operates to protect the debtor and the property of the debtor’s bankruptcy estate.

In the case of a lease, whether commercial or residential, the critical issue is whether a writ of eviction has already been issued from the landlord-tenant court. There is a significant body of case law from the U.S. Bankruptcy Court for the Southern District of New York and U.S. Bankruptcy Court (covering Manhattan, Bronx and White Plains) and U.S. Bankruptcy Court for the Eastern District of New York (covering Brooklyn, Queens, Staten Island and Long Island) that once a writ of eviction has issued from the landlord-tenant court the interest of the tenant in the lease has terminated.
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A creditor can start an involuntary bankruptcy case in New York City against a debtor (either a person or business) who owes the creditor money. An involuntary bankruptcy case is a bankruptcy case started by creditors. If a debtor has more than 12 creditors who are owed at least $13,475 as a group, those creditors can file an involuntary bankruptcy case against the debtor if they can establish that the debtor is not paying his, her or its debts as they become due. Also the debts must be fixed and liquidated in amount and not contingent (meaning that nothing else has to happen to fix liability – such as a judgment in a personal injury case resulting from an accident). In addition, the claims cannot be subject to bona fide dispute as to liability or amount — if there is a valid and legitimate dispute about the debt it can’t be the basis for an involuntary bankruptcy case.

If a debtor has less than 12 creditors in all, one petitioning creditor owed at least $13,475 can commence an involuntary bankruptcy petition against the debtor.
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New York is a destination for many people relocating here for work, school or personal reasons. Many people are surprised to find out how expensive the cost of living is here compared to many other parts of the country. Many people underestimate their costs of housing and other living expenses which causes a lot of problems for their budget.

A common question we get asked is “How long do I have to live in New York before I can file for bankruptcy here?”

The rule is that you have to have lived here more in the past 180 days than anywhere else. So, for example, if someone moved here from Ohio, she would need to live in New York at least 91 days before she could file for bankruptcy here.
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