Monthly Archives: March 2014

The Supreme Court’s Recent Ruling On The Homestead Exemption In Bankruptcy

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The homestead exemption in bankruptcy is one of the most well known exemptions in bankruptcy law.  The ability to file a bankruptcy case and not have creditors tamper with one’s real property is a major advantage to debtors seeking a fresh start.  The homestead exemption varies from state, and in Kansas it is one of the most generous in the country.  A recent Supreme Court decision reaffirmed the commitment of the courts to ensuring that this exemption will continue to be absolute and unqualified.  

At the same time, the decision restated the power that bankruptcy courts enjoy under Section 105(a) of the code.  This section has applicability in business bankruptcy cases, when it is used routinely by debtors in possession to facilitate their reorganization and for selling assets free and clear of liens under Section 363.

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The Attorney-Client Privilege For Corporations And Businesses In Chapter 11 And Chapter 7 Bankruptcy

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This article will discuss briefly the attorney-client privilege for corporations in Chapter 7 and Chapter 11 cases.  Notice that I put the words “for corporations” in bold face here. We will here only be talking about the attorney-client privilege for corporations, not for individuals.  The two scenarios are different and separate.  There can be major differences between how individuals and business entities are treated, and it is critical to keep this in mind.

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Assigning An Executory Contract In A Chapter 11 Business Bankruptcy

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There are times in a Chapter 11 case when the debtor wishes to assign a contract or lease to a third party.  The debtor, for example, may not be able to continue performing on the contract but may want to continue to see the contract or lease honored.  The first step in this process is for the debtor to assume the contract in accordance with Chapter 11 procedure.

Once this has been done, the debtor would need to provide some assurance of future performance of the contract by the person to whom the contract has been assigned.  This may be done by providing financial information about the assignee that demonstrates the ability to perform the contract, or, in the case of a default, the ability to compensate the other party to the contract in some meaningful way.

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Using The Chapter 11 Business Asset Sale Procedure In Creative Ways

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Although a Chapter 11 filing can be an option of last resort for most businesses, being proactive and exploring options at the earliest opportunity can reap great rewards.  Using a targeted Chapter 11 filing can work wonders, especially where asset sales are concerned. One recent example illustrates this principle very clearly.  Business owners should understand that the Chapter 11 process is their friend in a crisis, not something to be avoided.

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The Field Sobriety Tests In A DUI Or DWI Case

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When a person is stopped by a law enforcement officer for suspicion of having driven while under the influence (DUI) or intoxicated (DWI), the officer will often ask that the driver perform a series of “field sobriety tests.”  These tests were established in 1982 by the National Highway Traffic And Safety Administration (NHTSA) as a way to impose (in theory, at least) some measure of uniformity and consistency in determining whether a person has been driving under the influence.

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Myths And Misconceptions About Bankruptcy

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One of the downsides of living in the media age is the fact that there are too many voices in the echo chamber.  Many of these voices are people who are not informed on the subjects that they are speaking about.  Worse yet, some of these voices have presences in the media and are in a position to offer “advice” and “guidance” on complicated subjects that plays to peoples’ fears, guilt, and shame.

We see this phenomenon sometimes when we meet with distressed and anxious people for the first time.  Some people have been listening to information peddled by media financial celebrities who are selling books, audio products, or “financial advice.”  Sometimes people have been listening to rumors from random friends and acquaintances.

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Different Types Of Federal Crimes

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Federal criminal practice is distinct and separate from criminal practice in state and municipal courts.  It has its own particular rules, procedures, and body of case law.  Federal crimes fall into four classifications:  felonies, misdemeanors, infractions, and petty offenses.

There are further groupings and classifications within these four broad categories.  There are sex crimes, financial crimes, banking crimes, drug crimes, etc.  Various statutes and provisions of the US Code govern the different offenses.  The Federal Sentencing Guidelines Manual, together with relevant statutes and case law, control sentencing.

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Selling Bankruptcy Estate Property In A Chapter 11 Case

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Business bankruptcy cases can be different from personal cases, in that assets will often need to be sold off soon after a petition is filed.  This can happen in personal cases as well, of course, but businesses cases can sometimes carry with them a special sense of urgency.  Cash often needs to be raised, or the business may need to shed itself of unwanted assets.

Real estate cases see this issue with some frequency, where closing and sale dates are negotiated in advance.  Assets can be sold before, during, and after confirmation of a Chapter 11 plan.  Sections 363 and 1123 of the Bankruptcy Code govern preconfirmation and postconfirmation sales of estate assets, respectively.

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The Credit Counseling Class And Financial Management Class In Bankruptcy

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One of the requirements that was instituted in bankruptcy cases in 2005 was the need for debtors to take two separate “classes” as part of their bankruptcy case.  These classes can be completed through private companies specifically designed for the purpose of offering them.  They typically cost between $25 to $40 to complete.  The first class is called the “credit counseling class”, and it is supposed to be completed before the bankruptcy case is filed.

It can be done over the phone, or on the internet, and it typically takes about 45 to 60 minutes to complete.  Once it is finished, the debtor and the attorney are provided with a completion certificate.  This certificate is filed with the court when the case is filed.  Basically, the debtor is asked a series of questions about his or her income and expenses.

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Homeowners Dues, Homes Association Dues, And Timeshare Dues In Bankruptcy

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One issue that sometimes arises in a bankruptcy case is the treatment of homes association dues, homeowners’ dues, and timeshare dues.  Some property owners live in neighborhoods or developments that charge them a monthly fee for various services, such as grounds maintenance, snow removal, maintenance of public areas, and related things. Not all homes have these, of course.  But some do, and it is important to understand how the treatment of these dues interact with bankruptcy law.

If a debtor files bankruptcy, any homeowners’ or association dues that are in arrears at the time of the filing are handled within the bankruptcy case.  However, any post-petition dues that arise after the case is filed will need to be paid until the debtor’s interest in the property is terminated.  For example, suppose a debtor files a Chapter 7 case and the monthly homeowners dues are $90 per month.  At the time of filing there is $850 owed to the homeowners association.  Also suppose that the debtor wants to surrender the property.  The arrearage amount that existed at the time of filing ($850) is handled like the other unsecured debts (assuming there is no lien on the property), and would normally be discharged along with the other unsecured debts.  However, the debtor technically still would be responsible for the ongoing monthly homes association dues until his rights in the property were terminated (normally, when the foreclosure sale is completed and any redemption period has run).

This issue can get complicated.  The key questions that normally need to be asked are:

1.  Has the homeowners association put a lien on the property?  If so, lien avoidance or lien stripping issues can come into the picture.

2.  Does the debtor want to stay in the property?

3.  What chapter of the bankruptcy code has the debtor filed under?  Things can change depending on if someone is in a Chapter 7, 11, or 13 case.

A common problem that can arise is when a debtor wants to surrender a timeshare or home in a bankruptcy case, but the mortgage company takes a long time to complete the foreclosure.  The debtor has filed the case, but the mortgage company delays the foreclosure.  Technically, the debtor is still responsible for the monthly homeowner dues from the filing of the bankruptcy until the termination of his or her rights in the property (after the foreclosure sale).

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Fortunately, in the real world, this problem often has a way of working itself out.  Homes associations are often willing to work out resolutions to these issues when they arise.  Municipal governments are becoming more sensitive to the problem of abandoned properties sitting idle and awaiting foreclosure.  It’s all part of the continuing fallout from the mortgage and financial crisis of the past few years.  Make sure you consult with your attorney about any homeowners, homes association, or timeshare dues that you may have, so that you aren’t hit with any surprises.

Read More:  Converting A Chapter 11 Bankruptcy Case In Kansas City