Flint Bankruptcy Lawyer 235-1970

December 26, 2011

A Chapter 13 Bankruptcy sets up a 3 or 5 yr plan to pay certain debts ending with a discharge of remaining unsecured debt like credit cards. A chapter 7 Bankruptcy takes several months and ends with a discharge of your unsecured debt excluding things like taxes and student loans.
If you have Bankruptcy Questioins call Flint Bankruptcy Lawyer Terry R. Bankert 235-1970

BANKRUTPCY Issues: Chapter 13; Whether the bankruptcy court correctly concluded that the debtor has standing to pursue an avoidance action; Debtor’s “derivative” standing to pursue lien avoidance under 11 USC § 544; Countrywide Home Loans v. Dickson (In re Dickson); Realty Portfolio, Inc. v. Hamilton (In re Hamilton)(5th Cir.); Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.); Adhering to precedent; CSX Transp., Inc. v. McBride; Freedom to seek review in the Court of Appeals; Phar-Mor, Inc. v. McKesson Corp. (In re Phar-Mor, Inc.); Jurisdiction; Midland Asphalt Corp. v. United States; Drown v. National City Bank (In re Ingersoll); Standard of review; International Dairy Foods Ass’n v. Boggs; Perfection of the bank’s lien on debtor’s manufactured home; 11 USC § 541(a)(1); Lyon v. Eiseman (In re Forbes); Butner v. United States; Waiver; Bailey v. Floyd Cnty. Bd. of Educ.

Court: U.S. Bankruptcy Appellate Panel Sixth Circuit
Case Name: In re Barbee
e-Journal Number: 50351
Judge(s): Harris, Boswell, and McIvor

Following the holding in Dickson, the court affirmed the bankruptcy court’s determination that the Chapter 13 debtor had derivative standing to avoid the appellant-Bank’s lien pursuant to § 544. Thus, the court also affirmed the bankruptcy court’s order granting the debtor summary judgment.

DEBTOR TOOK LOAN FROM COUNTRY WIDE HOME LOANS

The relevant facts were undisputed. On 11/15/99, the debtor and G borrowed $75,558.93 from Countrywide Home Loans, repayment of which was secured by the grant of a mortgage lien in favor of Countrywide.

1999 MORTGAGE

The mortgage was dated 11/15/99, and was recorded on 12/1/99. The mortgage encumbered the real property and all improvements and fixtures located on it.

2009 THE COUNTYWIDE NOTE ASSIGNED TO BANK

On 10/22/09, the note and mortgage were assigned to the Bank. The debtor and G used the proceeds of the loan to acquire the real property. Located on the property is the debtor and G’s manufactured home.
DOUBLE WIDE TRAILER TURNED INTOI AN ACTUAL HOUSE

In the record was a letter from a loan officer to Countrywide as to the debtor’s loan from Countrywide advising that “[i]n 1997, this double wide mobile home was gutted and rebuild (sic) as an actual house.”
THE DEBTOR DID NOT GET A SEPARATE TITLE
The debtor and G did not acquire a separate title to the manufactured home and the record was unclear as to whether a certificate of title was ever issued for the manufactured home.
DEBTOR FILES FOR CHAPTER 13
On 11/11/09, the debtor filed a petition for relief under Chapter 13. The debtor later filed his adversary complaint, asserting that as a hypothetical lien creditor, he has superior title to the manufactured home located on the property, and that any interest the Bank has in the home was avoidable pursuant to § 544 because the Bank failed to perfect its lien on the manufactured home pursuant to Kentucky law.

The Bank asserted, inter alia, that the debtor did not have standing to bring the avoidance action. Citing Dickson, the bankruptcy court held that the debtor had derivative standing to pursue the lien avoidance under § 544. The Bank argued that the debtor lacked standing to bring the avoidance action because a debtor cannot be granted derivative standing to exercise the trustee’s strong arm powers as to consensual liens.

The debtor asserted that he had derivative standing to pursue lien avoidance under § 544 pursuant to the decision in Dickson. While acknowledging the holding in Dickson, the Bank argued that the debtor lacked standing to pursue avoidance of the lien based on the plain language of the Bankruptcy Code and the reasoning of courts which have found that a Chapter 13 debtor lacks standing to exercise the trustee’s avoidance powers. When the Bank filed its brief in this appeal, an appeal of the decision in Dickson was pending before the Sixth Circuit Court of Appeals. Thus, the court issued an order holding this appeal in abeyance pending a decision in Dickson. The Sixth Circuit issued a decision in Dickson on 8/26/11. However, the Court of Appeals never reached the issue of derivative standing. Instead, the Sixth Circuit held that the transfer at issue in Dickson was involuntary, so that the debtor had direct, statutory standing to seek avoidance of the creditor’s lien. “Without deciding whether a later panel must always follow the precedent of a prior panel,” the court saw no reason in this case to break with the principles of stare decisis and thus, followed the holding in Dickson. “Adhering to precedent promotes uniformity of case law” in the Circuit and “the goals of ‘stability’ and ‘predictability’ that the doctrine of statutory stare decisis aims to ensure.” The court noted that the Bank was free to seek review of its decision in the Court of Appeals, which is not bound by decisions of Bankruptcy Appellate Panels.

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YOUR PERSONAL WALL STREET TYPE BAILOUT A CHAPTER SEVEN BANKRUPTCY -810-235-1970

November 15, 2011

WE HAVE WATCHED WALL STREET, BIG BANK AND BIG BUSINESS GET BAILED OUT. WHAT ABOUT YOU? The Bankruptcy code was written for you and can be your own personal bail out. Flint BankruptcyAttorney Terry Bankert  presents on Flint D ivorce and Flint Bankruptcy 810-235-1970.

Basic Bankruptcy options available.

Types of Bankruptcies. The four main types of bankruptcies are as follows:
Chapter 7—Liquidation: In a Chapter 7 the debtor turns over all non-exempt property to the Chapter 7 Trustee: this Trustee sells or liquidates the property and distributes the proceeds to creditors according to the priority scheme set forth in the bankruptcy code, and usually in a small one-time payment. The debtor will be released (discharged) from the unpaid portion of many types of debt unless a creditor objects to the debtor’s discharge, or unless a creditor objects to the dischargeability of its particular claim. The Chapter 7 Trustee is always appointed by the United States Trustee and is usually a member of a panel of Trustees.
Chapter 11—Reorganization: The purpose of Chapter 11 is to allow the debtor a breathing spell from creditors, thereby enabling the debtor to reorganize its financial affairs. This is the most expensive and complicated type of bankruptcy and can last for years. If successful, a plan of reorganization would be proposed which is subject to the vote of creditors.
Chapter 12—Family Farmer Bankruptcy: Chapter 12 can only be filed by a family farmer with regular annual income. This proceeding is similar to a Chapter 13, described below.
Chapter 13—Adjustment of Debts: Chapter 13 can only be filed by individuals with regular income (filing with or without a spouse) and with unsecured debts of less than $336,900 and secured debts of less than $1,010,650—See ll U.S.C. § 109(e). (These dollar limits are adjusted at 3-year intervals: the most recent adjustment was effective April 1, 2007.) The purpose of a Chapter 13 is for the debtor to pledge part of his or her income over a period of time (usually 3 to 5 years) to pay all or a portion of the debt. Once this portion of the debt is paid, the debtor is released (i.e. discharged) from the unpaid portion of the debts. Soon after the case is commenced, the debtor must propose a plan which fits within the strict requirements of the Bankruptcy Code. Priority debts must be paid in full. (See 11 U.S.C. §1322(a)(2).) Pursuant to §507(a)(1), a debt for a domestic support obligation (defined below) is a first priority unsecured claim

.
PERSONAL BAILOUT OR Discharge: The main reason why any individual files bankruptcy is to try to get a discharge from debts which are owing to creditors. 11 U.S.C. § 727 says that all individual debtors are eligible to receive a discharge unless he or she committed one of the “bad acts” described in 11 U.S.C. § 727.

III. WHAT IN BANKRUPTCY IS A DOMESTIC SUPPORT OBLIGATION.

The Bankruptcy Reform Act gives us a new term—“domestic support obligation”—which is defined in 11 U.S.C. § 101(14A), as follows:
(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
Nondischargeability of Domestic Support Obligations: 11 U.S.C. § 523(a)(5) provides that a DSO cannot be discharged in Bankruptcy.
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—…
(5) for a domestic support obligation;
Special Impact of Domestic Support Obligations in Chapter 13 Cases:

IV. Nondischargeability of Property Settlement
Before the Bankruptcy Reform Act, 11 U.S.C. § 523(a)(15) provided that property settlement debts were nondischargeable unless the debtor lacked the ability to pay it according to the criteria described in the statute, or unless discharging the property settlement would result in a benefit to the debtor that outweighed the detriment to the non-debtor spouse, former spouse or child. The old law also required that the non-debtor spouse commence an adversary proceeding in bankruptcy court to determine the nondischargeability of the property settlement and, pursuant to 11 U.S.C. § 523(c) the complaint in that adversary proceeding was required to be filed within 60 days after the first date set for the meeting of creditors pursuant to 11 U.S.C. § 341. If a nondischargeability complaint was not timely filed, the property settlement was automatically discharged under 11 U.S.C. § 727. 11 U.S.C. § 523(c) often resulted in non-debtor spouses having to spend limited funds in order to “protect” their property settlements.
11 U.S.C. § 523(a)(15) was oddly written. Courts, attorneys, and litigants consistently struggled with it. The Bankruptcy Reform Act resolves the difficulty by revising § 523(a)(15) so that it reads as follows:
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—…
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record or, a determination made in accordance with State or territorial law by a governmental unit;…
Thus, under the Bankruptcy Reform Act, even if a debtor’s obligation in a divorce decree does not come within the definition of “domestic support obligation” so as to be nondischargeable under § 523(a)(5), it is still nondischargeable under § 523(a)(15) if it is a property settlement debt to a spouse, former spouse or child.
In applying the Bankruptcy Reform Act, bankruptcy judges are now more likely to view any obligation in a divorce decree as being nondischargeable by a party to that divorce who later winds up in bankruptcy.
Also, the Reform Act amends 11 U.S.C. § 523(c) so that the non-debtor spouse is not required to file an adversary proceeding in order to preserve the nondischargeability of the debtor’s obligations that fall within the scope of 11 U.S.C. § 523(a)(15). This is an important change in the law, designed to protect non-debtor spouses and children by eliminating the need for them to spend precious resources trying to “protect” the property settlement by commencing an adversary proceeding in the bankruptcy court.
Taken together, the Reform Act’s changes to 11 U.S.C. § 523(a)(5) and (15) operate to exempt from discharge all alimony, maintenance, support, property settlements, hold-harmless obligations, etc. to a spouse, former spouse or child so long as they are incurred in the course of a divorce or separation, or in connection with the divorce decree, separation agreement or other order.

V. Are There Any Remaining Differences Between Nondischargeable Domestic Support Obligation Under 11 U.S.C. § 523(A)(5) and Nondischargeable Property Settlement Under the Reform Act’s 11 U.S.C. § 523(A)(15)? The Answer Remains “Yes”—Even Under the Bankruptcy Reform Act
A debt which is nondischargeable under 11 U.S.C. § 523(a)(15) (e.g., a property settlement that is not in the nature of alimony, maintenance or support) is dischargeable in a Chapter 13 under the Reform Act if the debtor makes all payments under the Chapter 13 plan. However, a domestic support obligation which is nondischargeable under 11 U.S.C. § 523(a)(5) is nondischargeable even under Chapter 13, even if the debtor makes all of its payments due under the plan and receives a super-discharge. See 11 U.S.C. § 1328(a).
In Chapter 13 cases, domestic support obligations get better treatment than do property settlements. For example, the failure of a Chapter 13 debtor’s failure to pay a domestic support obligation post-petition is grounds for denial of confirmation of the Chapter 13 plan (11 U.S.C. § 1325(a)(8)), and if the failure occurs post-confirmation, it is a ground for dismissal or conversion of the Chapter 13 case (see 11 U.S.C. § 1307(c)(11)). Debts for property settlement are not given similar protection. Furthermore, the debtor’s plan is required to cure all domestic support obligation arrearages during the life of the Chapter 13 plan, unless the recipient agrees to a different treatment.
First Priority for Domestic Support Obligations: Another difference between domestic support obligations and property settlement debts is that 11 U.S.C. § 507 makes unsecured claims for domestic support obligations first priority, subject only to the fees and expenses incurred by a trustee in collecting them. Property settlement does not enjoy this high priority. The pertinent section of the Bankruptcy Reform Act reads as follows:
VI. Exceptions to the Automatic Stay

Bankruptcy’s automatic stay is a comprehensive injunction that stays actions against the debtor, property of the debtor and/or property of the bankruptcy estate.[1] The automatic stay is embodied in 11 U.S.C. §362(a), but there are 28 statutory exceptions to the automatic stay: those exceptions are set forth in 11 U.S.C. §362(b)(1)–(28).
The Bankruptcy Reform Act amended the exceptions to the automatic stay which pertain to family law matters. These changes in the Bankruptcy Code clarify that a broader range of family-law proceedings can continue even when one spouse files bankruptcy. Consequently, the following activities do not constitute a violation of bankruptcy’s automatic stay:
§ 362. Automatic Stay…
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—
(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor;
(2) under subsection (a)—
(A) of the commencement or continuation of a civil action or proceeding—
(i) for the establishment of paternity;
(ii) for the establishment or modification of an order for domestic support obligations;
(iii) concerning child custody or visitation;
(iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or
(v) regarding domestic violence;
(B) of the collection of a domestic support obligation from property that is not property of the estate;
(C) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute;
(D) of the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, under State law, as specified in section 466 (a) (16) of the Social Security Act;
(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act;
(F) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or
(G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act.
The highlights of this new exemption from automatic stay are:
In addition to criminal proceedings, a wide variety of civil actions can proceed against a person who files bankruptcy including civil actions regarding paternity, civil actions to establish or modify domestic support obligations, civil actions regarding custody or visitation, civil actions regarding domestic violence, and civil actions to dissolve a marriage (but actions concerning property of the debtor’s estate are stayed).
Income/wage withholding orders can still proceed, even if they target the debtor’s property or property of the estate.
Suspension of driver’s license or professional license to the extent that state law provides for such a suspension, reporting of overdue support, can proceed.

VII. Can Property Settlements in Divorce Judgments Be Challenged as Fraudulent Transfers?
In and out of bankruptcy, there are various laws that generally enable creditors to avoid (i.e. undo) transfers made or obligations incurred that have the effect of improperly putting a debtor’s assets beyond the reach of his or her creditors. Generally, transfers made (or obligations incurred) are considered to be a “fraud on creditors” when they are “actually fraudulent” (e.g. with actual intent to hinder, delay or defraud a creditor: See MCL 566.34(a)) or “constructively fraudulent” (e.g. transfers made (or obligations incurred) in exchange for less than reasonably equivalent value and by one who is either: (i) insolvent or rendered insolvent by the transfer made or obligation incurred (See MCL 566.35(1)), or (ii) engaged (or about to engage) in a business or transaction with unreasonably small assets (See MCL 566.34(b)(i)) or (iii) who intends or reasonably should have known that he or she is about to incur debt that is beyond his or her ability to pay when the debt becomes due. (See MCL 566.34(b)(ii)). Outside of bankruptcy, creditors can use MCL 566.31, et seq., which is Michigan’s version of the Uniform Fraudulent Transfer Act (“UFTA”) to avoid and recover fraudulent transfers. In bankruptcy, the debtor or trustee can use 11 USC §§ 544 and 548 to recover fraudulent transfers (11 U.S.C. § 544 “incorporates” applicable non-bankruptcy law, including UFTA).

Basic Bankruptcy options available.
Types of Bankruptcies. The four main types of bankruptcies are as follows:
Chapter 7—Liquidation: In a Chapter 7 the debtor turns over all non-exempt property to the Chapter 7 Trustee: this Trustee sells or liquidates the property and distributes the proceeds to creditors according to the priority scheme set forth in the bankruptcy code, and usually in a small one-time payment. The debtor will be released (discharged) from the unpaid portion of many types of debt unless a creditor objects to the debtor’s discharge, or unless a creditor objects to the dischargeability of its particular claim. The Chapter 7 Trustee is always appointed by the United States Trustee and is usually a member of a panel of Trustees.
Chapter 11—Reorganization: The purpose of Chapter 11 is to allow the debtor a breathing spell from creditors, thereby enabling the debtor to reorganize its financial affairs. This is the most expensive and complicated type of bankruptcy and can last for years. If successful, a plan of reorganization would be proposed which is subject to the vote of creditors.
Chapter 12—Family Farmer Bankruptcy: Chapter 12 can only be filed by a family farmer with regular annual income. This proceeding is similar to a Chapter 13, described below.
Chapter 13—Adjustment of Debts: Chapter 13 can only be filed by individuals with regular income (filing with or without a spouse) and with unsecured debts of less than $336,900 and secured debts of less than $1,010,650—See ll U.S.C. § 109(e). (These dollar limits are adjusted at 3-year intervals: the most recent adjustment was effective April 1, 2007.) The purpose of a Chapter 13 is for the debtor to pledge part of his or her income over a period of time (usually 3 to 5 years) to pay all or a portion of the debt. Once this portion of the debt is paid, the debtor is released (i.e. discharged) from the unpaid portion of the debts. Soon after the case is commenced, the debtor must propose a plan which fits within the strict requirements of the Bankruptcy Code. Priority debts must be paid in full. (See 11 U.S.C. §1322(a)(2).) Pursuant to §507(a)(1), a debt for a domestic support obligation (defined below) is a first priority unsecured claim

.
PERSONAL BAILOUT OR Discharge: The main reason why any individual files bankruptcy is to try to get a discharge from debts which are owing to creditors. 11 U.S.C. § 727 says that all individual debtors are eligible to receive a discharge unless he or she committed one of the “bad acts” described in 11 U.S.C. § 727.

III. WHAT IN BANKRUPTCY IS A DOMESTIC SUPPORT OBLIGATION.

The Bankruptcy Reform Act gives us a new term—“domestic support obligation”—which is defined in 11 U.S.C. § 101(14A), as follows:
(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
Nondischargeability of Domestic Support Obligations: 11 U.S.C. § 523(a)(5) provides that a DSO cannot be discharged in Bankruptcy.
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—…
(5) for a domestic support obligation;
Special Impact of Domestic Support Obligations in Chapter 13 Cases:

IV. Nondischargeability of Property Settlement
Before the Bankruptcy Reform Act, 11 U.S.C. § 523(a)(15) provided that property settlement debts were nondischargeable unless the debtor lacked the ability to pay it according to the criteria described in the statute, or unless discharging the property settlement would result in a benefit to the debtor that outweighed the detriment to the non-debtor spouse, former spouse or child. The old law also required that the non-debtor spouse commence an adversary proceeding in bankruptcy court to determine the nondischargeability of the property settlement and, pursuant to 11 U.S.C. § 523(c) the complaint in that adversary proceeding was required to be filed within 60 days after the first date set for the meeting of creditors pursuant to 11 U.S.C. § 341. If a nondischargeability complaint was not timely filed, the property settlement was automatically discharged under 11 U.S.C. § 727. 11 U.S.C. § 523(c) often resulted in non-debtor spouses having to spend limited funds in order to “protect” their property settlements.
11 U.S.C. § 523(a)(15) was oddly written. Courts, attorneys, and litigants consistently struggled with it. The Bankruptcy Reform Act resolves the difficulty by revising § 523(a)(15) so that it reads as follows:
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—…
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record or, a determination made in accordance with State or territorial law by a governmental unit;…
Thus, under the Bankruptcy Reform Act, even if a debtor’s obligation in a divorce decree does not come within the definition of “domestic support obligation” so as to be nondischargeable under § 523(a)(5), it is still nondischargeable under § 523(a)(15) if it is a property settlement debt to a spouse, former spouse or child.
In applying the Bankruptcy Reform Act, bankruptcy judges are now more likely to view any obligation in a divorce decree as being nondischargeable by a party to that divorce who later winds up in bankruptcy.
Also, the Reform Act amends 11 U.S.C. § 523(c) so that the non-debtor spouse is not required to file an adversary proceeding in order to preserve the nondischargeability of the debtor’s obligations that fall within the scope of 11 U.S.C. § 523(a)(15). This is an important change in the law, designed to protect non-debtor spouses and children by eliminating the need for them to spend precious resources trying to “protect” the property settlement by commencing an adversary proceeding in the bankruptcy court.
Taken together, the Reform Act’s changes to 11 U.S.C. § 523(a)(5) and (15) operate to exempt from discharge all alimony, maintenance, support, property settlements, hold-harmless obligations, etc. to a spouse, former spouse or child so long as they are incurred in the course of a divorce or separation, or in connection with the divorce decree, separation agreement or other order.

V. Are There Any Remaining Differences Between Nondischargeable Domestic Support Obligation Under 11 U.S.C. § 523(A)(5) and Nondischargeable Property Settlement Under the Reform Act’s 11 U.S.C. § 523(A)(15)? The Answer Remains “Yes”—Even Under the Bankruptcy Reform Act
A debt which is nondischargeable under 11 U.S.C. § 523(a)(15) (e.g., a property settlement that is not in the nature of alimony, maintenance or support) is dischargeable in a Chapter 13 under the Reform Act if the debtor makes all payments under the Chapter 13 plan. However, a domestic support obligation which is nondischargeable under 11 U.S.C. § 523(a)(5) is nondischargeable even under Chapter 13, even if the debtor makes all of its payments due under the plan and receives a super-discharge. See 11 U.S.C. § 1328(a).
In Chapter 13 cases, domestic support obligations get better treatment than do property settlements. For example, the failure of a Chapter 13 debtor’s failure to pay a domestic support obligation post-petition is grounds for denial of confirmation of the Chapter 13 plan (11 U.S.C. § 1325(a)(8)), and if the failure occurs post-confirmation, it is a ground for dismissal or conversion of the Chapter 13 case (see 11 U.S.C. § 1307(c)(11)). Debts for property settlement are not given similar protection. Furthermore, the debtor’s plan is required to cure all domestic support obligation arrearages during the life of the Chapter 13 plan, unless the recipient agrees to a different treatment.
First Priority for Domestic Support Obligations: Another difference between domestic support obligations and property settlement debts is that 11 U.S.C. § 507 makes unsecured claims for domestic support obligations first priority, subject only to the fees and expenses incurred by a trustee in collecting them. Property settlement does not enjoy this high priority. The pertinent section of the Bankruptcy Reform Act reads as follows:
VI. Exceptions to the Automatic Stay

Bankruptcy’s automatic stay is a comprehensive injunction that stays actions against the debtor, property of the debtor and/or property of the bankruptcy estate.[1] The automatic stay is embodied in 11 U.S.C. §362(a), but there are 28 statutory exceptions to the automatic stay: those exceptions are set forth in 11 U.S.C. §362(b)(1)–(28).
The Bankruptcy Reform Act amended the exceptions to the automatic stay which pertain to family law matters. These changes in the Bankruptcy Code clarify that a broader range of family-law proceedings can continue even when one spouse files bankruptcy. Consequently, the following activities do not constitute a violation of bankruptcy’s automatic stay:
§ 362. Automatic Stay…
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—
(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor;
(2) under subsection (a)—
(A) of the commencement or continuation of a civil action or proceeding—
(i) for the establishment of paternity;
(ii) for the establishment or modification of an order for domestic support obligations;
(iii) concerning child custody or visitation;
(iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or
(v) regarding domestic violence;
(B) of the collection of a domestic support obligation from property that is not property of the estate;
(C) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute;
(D) of the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, under State law, as specified in section 466 (a) (16) of the Social Security Act;
(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act;
(F) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or
(G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act.
The highlights of this new exemption from automatic stay are:
In addition to criminal proceedings, a wide variety of civil actions can proceed against a person who files bankruptcy including civil actions regarding paternity, civil actions to establish or modify domestic support obligations, civil actions regarding custody or visitation, civil actions regarding domestic violence, and civil actions to dissolve a marriage (but actions concerning property of the debtor’s estate are stayed).
Income/wage withholding orders can still proceed, even if they target the debtor’s property or property of the estate.
Suspension of driver’s license or professional license to the extent that state law provides for such a suspension, reporting of overdue support, can proceed.

VII. Can Property Settlements in Divorce Judgments Be Challenged as Fraudulent Transfers?
In and out of bankruptcy, there are various laws that generally enable creditors to avoid (i.e. undo) transfers made or obligations incurred that have the effect of improperly putting a debtor’s assets beyond the reach of his or her creditors. Generally, transfers made (or obligations incurred) are considered to be a “fraud on creditors” when they are “actually fraudulent” (e.g. with actual intent to hinder, delay or defraud a creditor: See MCL 566.34(a)) or “constructively fraudulent” (e.g. transfers made (or obligations incurred) in exchange for less than reasonably equivalent value and by one who is either: (i) insolvent or rendered insolvent by the transfer made or obligation incurred (See MCL 566.35(1)), or (ii) engaged (or about to engage) in a business or transaction with unreasonably small assets (See MCL 566.34(b)(i)) or (iii) who intends or reasonably should have known that he or she is about to incur debt that is beyond his or her ability to pay when the debt becomes due. (See MCL 566.34(b)(ii)). Outside of bankruptcy, creditors can use MCL 566.31, et seq., which is Michigan’s version of the Uniform Fraudulent Transfer Act (“UFTA”) to avoid and recover fraudulent transfers. In bankruptcy, the debtor or trustee can use 11 USC §§ 544 and 548 to recover fraudulent transfers (11 U.S.C. § 544 “incorporates” applicable non-bankruptcy law, including UFTA).


FLINT BANKRUPTCY LAWYER ON CHAPTER 7 AND CHAPTER 13

March 16, 2011

There are two main types of bankruptcies for citizens:

Bankruptcy in Chapter 7 allows your family to eliminate most unsecured debts ,no lliens,in several months by giving up all “non-exempt” property — if you have any.

In Flint Bankruptcy people in great debt who file for Chapter 7 Bankruptcy, have no available non-exempt property or equity. This means that for many what they own at the beginning of a bankruptcy they keep.Your property may be protected by exemption laws, or pledged to a secured creditor as collateral for a debt, and therefore not available to pay off unsecured creditors.

This type of Flint Bankruptcy is called a “no asset” bankruptcies, and most Chapter 7s are of this type.

Bankruptcy in Chapter 13 takes 3 to 5 years. In exchange for not giving up property, debtor repays a portion of the debts and lives within a strict budget that is watched closely by the Flint bankruptcy court trustee. 50% can’t make the required monthly payments, this causes Chapter 13 bankruptcy to fail and debts will remain (unless debtor converts to a Chapter 7 bankruptcy).

Flint Bankruptcy Chapter 13 is used by debtors who are behind on secured debt payments (e.g., mortgages) and present to the Bankrupcy Judge by way of a Trustee a Chapter 13 plan to catch up on these payments over time.

New to Flint Bankruptcy ,October 2005, is a mathematical formula called the “means test” this establishes an initial determination of the kind of bankruptcy debtor may qualify for: Chapter 7, Chapter 13, or either. This formula takes into account:

•your monthly income
•the amount and kind of your debts, and
•other aspects of your financial situation.
If your annual income is less than the Michigan median income for your household size, then you can file for Chapter 7 or Chapter 13, (assuming you meet other qualifications). If your income is higher than the state median, you must first complete a long list of expense deductions to estimate what your ‘disposable income’ will be over the next five years. The result of this calculation determines whether you can file for Chapter 7, or are left with Chapter 13 as your only option.

If you have additional question contact me through
http://www.attorneybankert.com
or
Terry@attorneybankert.com


HAMP, FAILING OR JUST MISUNDERSTOOD?

November 17, 2010

Home affordability modification Program failing horribly this 75 billion dollar program was planned to help 5 million home owners and it has not. What happened? What is HAMP discussed here.

The $75 billion Home Affordability Modification Program designed by the Obama Administration to help struggling homeowners by lowering borrowers’ monthly payments with mortgage rate reductions and extended loan terms. HAMP originally promised to help four to five million homeowners.[4]

TOTALS OF A REPORT HAMP MODIFICATION ACTIVITY BY SERVICER.
This program report through July 2010.
Total estimated eligible 60+ day delinquent borrowers 1,456,363
Trial Plan offers extended 1,553,925
All HAMP trials started 1,307,489
Active trial modifications 255,934
Permanent modifications 421,804
[5]

This site at https://dumpmycreditors.wordpress.com/2010/11/17/hamp-failing-or-just-misunderstood/

LOCAL PRACTITIONER DISCUSSION
Terry Bankert a Flint Bankruptcy Attorney attended a professional workshop , Birch Run 11/17/10, on the problems of HAMP (Home Affordable Modification Program). This Huffington article was the foundation of the discussion that “the best in the field” made top flight comments and recommendation. Here it is morphed with other material to inform. [trb] This article is SEO to explain this, Terry Bankert a Flint Bankruptcy Lawyer 810-235-1970

BANKS HARRASS HOME OWNER

Wells Fargo put an Illinois woman though a “nightmare of harassment, frustration, and relentless stress” when she tried to apply for a mortgage modification under the Obama administration’s Home Affordable Modification Program, according to a lawsuit filed in federal court this week. From the Huffington Post updated story 11-12-2010.
http://www.huffingtonpost.com/2010/11/12/wells-fargo-makes-it-near_n_782634.html
[1]

The Mortgage default risk is no longer limited to the “subprime” sector. Delinquencies on mortgages held or sold by Freddie Mac and fannie Mae have also mushroomed. Fannie Mae delinquencies have increased to 4.72 percent from 1.72 percent a year ago. Delinquencies in Freddie Mac’s portfolio increased to 3.72 percent from only 1.52 percent last year.[3]

WHAT IS HAMP

On March 4, 2009, the U.S. Department of the Treasury (Treasury) announced details of the Home Affordable Modification program (HAMP) as part of the Making Home Affordable Program. HAMP is a loan modification program designed to reduce delinquent and at-risk borrowers’ monthly mortgage payments. Freddie Mac is pleased to play a leadership role by implementing this program.[2]

[This program]…designed to encourage lender to modify mortgages in order to reduce monthly mortgage payments for borrows. Under the program sevicers and lenders would receive compensation from the Department of the treasury for agreeing to modify mortgages. [3]

HAMP FOR THOSE 31 DAYS DELINQUENT

HAMP is effective immediately for mortgages originated on or prior to January 1, 2009, and will expire on December 31, 2012. Servicers must solicit eligible borrowers who are 31 or more days delinquent for a modification under HAMP, but cannot solicit borrowers for this program who are current or less than 31 days delinquent.[2]
HAMP establishes a step by step process to reduce payments.[summarized here]
1.Is the debtor eligible?
2.Calculate the debtors gross monthly income
3.Capitalize the arrearage
4.Reduce the interest rate to reach the target payment
5.Re-amortize the loan
6.Principal forbearance
7.Compensation to the lender and Service [3]

HAMP APPLICATION CAN CAUSE SOME TO LOSE THEIR HOME
It’s a familiar nightmare to many lured by HAMP’s promise of reduced monthly payments. More people have been bounced from the program than have received “permanent” five-year modifications, and federal auditors say the program sometimes actually causes borrowers to lose their homes.[1]

[Upon receiving a request from a servicer]..even where the information is unidentified the service can effect a modification …for a three-month trial period….If the borrowed makes the three payments during this 90 day trial period and submits all the documentation the modification become permanent.[3]

BOGUS BANK EXPLAINATIONS BOUNCES HAMP?
Therese Crowley of Deerfield, Ill., facing reduced income because of health problems and less demand for her broker services, first asked for a HAMP application in April 2009. Wells Fargo allegedly dragged its feet for four months before it sent one along, then denied the application in October and gave her bogus explanations when she called to complain. [1]

A TRAIL OF TEARS
In November, Wells Fargo told Crowley to apply again, then denied her again the following month. A week later she called the bank and spoke to a woman named Paula, who “determined that Wells Fargo had erroneously overstated Crowley’s income by $2,800,” the complaint alleges. “Also, the file erroneously indicated that Crowley owed $2,381.07 per month on a credit card debt which in fact had been paid off in 2002. Paula agreed that with the correct information (information that Wells Fargo had during this entire process), in her opinion Crowley qualified for a HAMP loan modification.”
Crowley applied again and was denied again in March. She called to complain, and was once again told she qualified. Then Wells Fargo allegedly put her in a “special forbearance period” during which she made reduced payments for three months while continuing to pursue a HAMP modification.[1]

CATCH ALL REJECTION JUSTIFICATION NPV
One day, she’d be told she didn’t qualify because of her income, another she’d be told she failed HAMP’s opaque “Net Present Value” test.[1]

WHO KNEW?
In August, she allegedly received the following from a Wells Fargo executive: “As indicated, your income doesn’t have anything to do with why you were actually denied for HAMP. You were denied for Net Present Value, at the time of the denial for NPV, we had been instructed to not use that as the reason because we were not prepared to explain Net Present Value denials.” [1]

40% MAKE IT

Crowley’s putative class action complaint is just one of many moving through courts across the country reflecting widespread frustration with HAMP. President Obama said the program would allow three to four million homeowners to modify their mortgages and keep their homes by 2012. So far, 466,708 are in active permanent modifications, while more than 700,000 have had their modifications canceled.[1]

The bankruptcy community has been disappointed with the failure of the Bankruptcy Code to deal with the mortgage payments that are out of reach of financially strapped debtors. Debtor attorneys should at least attempt to work servicers to modify mortgages under the HAMP program while a debtor is in a chapter 13 case. If so, many debtors might actually obtain a permanent modification, a family home can be saved, and a mortgage creditor can avoid a crushing loss.[3]

MAGIC NUMBER 31% SAVES $500 PER MONTH TO HOME OWNER
Eligible borrowers are supposed to have their monthly payments reduced to 31 percent of their monthly income, usually saving $500 a month. If they make the reduced payments for three months, the modification is supposed to become permanent.[1]

BANK MUM, EMAIL LYING?
Wells Fargo declined to comment on Crowley’s HAMP lawsuit (banks generally don’t discuss individual customers) but said in an email to HuffPost that 92 percent of its mortgage customers are current in their payments as of the second quarter of 2010 and that less than two percent of its owner-occupied servicing portfolio has gone to foreclosure sale on an annual basis.[1]

AVERAGE LOSS TO BANK $54,000
“Wells Fargo has led the real estate lending industry with more than $3.4 billion in principal forgiveness for customers facing financial hardship, permanently erasing on average 13 percent of the principal owed, which equals more than $54,000 per loan for more than 65,000 customers,” said a spokeswoman. [1]

FORECLOSURE
“Foreclosure is a last resort after all available options for maintaining homeownership have been exhausted.”[1]

PERGATORY
As for Crowley, she “hangs in limbo somewhere between loan modification and foreclosure,” according to the lawsuit.[1]

HARRASSMENT,FRUSTRATION, RELENTLESS STRESS, THANK YOU HAMP
“I am not just fighting for myself,” said Crowley in a statement. “I want to make sure other people won’t have to endure the same nightmare of harassment, frustration, and relentless stress that I have suffered.” [1]

An attorney assisting a borrower struggling financially and seeking relief under chapter 13 should examine the debtors mortgage to determine whether a HAMP modification might be possible. Obviously if a debtor’s mortgage payments can be reduced, chapter 13 becomes feasible. By performing an initial HAMP calculation an attorney can identify whether a mortgage payment target is possible……documenting the information necessary to support a HAMP modification is a task often beyond most debtors….The official document known as a Request for Modification and Affidavit (RMA) is a three page document that makes it relatively simple for a chapter 13 debtor to request a modification. The supporting documents are more challenging.[3]

[At the end of the day]…the lenders net present value analysis of the prospective modification vis a vis foreclosure. Simply stated the lender must make a mathematical determination as to whether there there is a greater value to the loan as modified than there is pursuing a forclosure.[3]…from all appearance the NPV test is based on faith.[3]

[1]
http://www.huffingtonpost.com/2010/11/12/wells-fargo-makes-it-near_n_782634.html

[trb]
This cite and CAP headlines by Terry Bankert 1000 Beach St, Flint MI 48503, 810-235-1970, http://attorneybankert.com

[2]
http://www.freddiemac.com/singlefamily/service/mha_modification.html

[3]
HAMP and your Chapter 13 practice ABI Journal 2/12/2010 article by Henry E.Hildebrand III Office of Chapter 13 Trustee Nashville Tenn. Hank13@ch13nsh.com

[4]
http://agentgenius.com/real-estate-news-events/home-affordability-modification-program-failing-horribly/
[5]
Making Home Affordable Program Servicer Report through July 2010