This past Thursday (7/8/10), a Massachusetts federal judge decided that a law barring the federal government from recognizing same-sex marriage is unconstitutional. Follow this link to read more about the decision. The decision will make obtaining bankruptcy relief easier and less expensive for same-sex married couples in Massachusetts.
Prior to the decision, same-sex married couples in need of a Chapter 7 or Chapter 13 bankruptcy filing could not file a joint bankruptcy petition. This was because bankruptcy is a federal legal proceeding, and under the federal Defense of Marriage Act, or DOMA, same-sex marriage was not recognized. As a result, a same sex married couple could not take advantage of the higher median income limit extended to 2-person households. This meant fewer gay and lesbian debtors could avoid the means test than their heterosexual counterparts. Another problem was that a same-sex married couple had to file two individual bankruptcy petitions, pay two filing fees, and typically incur higher legal fees than a heterosexual married couple.
It is not clear whether or not the U.S. Department of Justice is going to appeal the decision. If the decision is upheld on appeal, or not challenged at all, all married couples in Massachusetts will be treated equally throughout the bankruptcy process. The different treatment described above will be no more. The federal bankruptcy court will need to respond to the decision by updating its petition, forms and schedules to accommodate same-sex marriage terms, as many documents use the traditional labels of "husband" and "wife." Perhaps they will use the generic terms "debtor" and "co-debtor."
Frequently we are reminded that the only constant is change. This recent decision changes bankruptcy law in Massachusetts, and sets the stage for change in other jurisdictions. The decision may be upheld or overturned. Whatever the outcome, should financial distress take hold of you or someone you care about, make sure you/they seek counsel from an experienced bankruptcy attorney who remains current in this dynamic and important area of the law.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Friday, July 9, 2010
Monday, June 14, 2010
When a Chapter 13 Bankruptcy Filing is Appropriate
In general, a chapter 7 bankruptcy is preferable to a chapter 13. This is because a chapter 7 bankruptcy proceeding will produce a discharge of debt sooner than a chapter 13, and it will usually be less expensive. There are several situations, however, when a chapter 13 is the best option.
First, a debtor may simply be ineligible to file a chapter 7 bankruptcy because he or she has too much monthly income remaining after monthly expenses are paid.
Second, a debtor may be ineligible to file a chapter 7 bankruptcy because fewer than eight years have elapsed since the debtor filed a prior chapter 7 case that resulted in a discharge of debt.
Third, a debtor may have fallen behind in house or vehicle payments and cannot pay the arrearage, but now has the ability to resume making regular payments and wants to retain the house or vehicle. The chapter 13 plan will allow the debtor to pay the arrearage over time.
Fourth, a debtor may own too much "non-exempt" property, and wants to retain such property.
Finally, the debtor may want to take advantage of the lien-avoiding rules only available in chapter 13 proceedings, such as "lien stripping" and "cram downs." "Lien stripping" is when a secured debt is converted into an unsecured debt, and gets treated the same as all of the debtor's other unsecured debt. The most common example of this is a wholly-unsecured junior mortgage. Such a mortgage will get paid partially through a chapter 13 plan, and the unpaid balance will be eliminated along with the unpaid balance of the debtor's other unsecured debt, such as credit cards and medical bills. A "cram down" occurs when a secured loan, having a balance in excess of the value of the collateral securing such loan, is reduced to the value of the collateral. Although the secured portion of the loan will get paid in full, the unsecured portion of the loan (the portion of the loan in excess of the value of the collateral) will be treated the same under the chapter 13 plan as the debtor's other unsecured debt, and will be paid back partially. The most frequent "cram down" target is a car loan.
I like to think of a chapter 7 proceeding as "Plan A", and a chapter 13 proceeding as "Plan B". I will only recommend "Plan B" to a client if one of the above situations is present.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
First, a debtor may simply be ineligible to file a chapter 7 bankruptcy because he or she has too much monthly income remaining after monthly expenses are paid.
Second, a debtor may be ineligible to file a chapter 7 bankruptcy because fewer than eight years have elapsed since the debtor filed a prior chapter 7 case that resulted in a discharge of debt.
Third, a debtor may have fallen behind in house or vehicle payments and cannot pay the arrearage, but now has the ability to resume making regular payments and wants to retain the house or vehicle. The chapter 13 plan will allow the debtor to pay the arrearage over time.
Fourth, a debtor may own too much "non-exempt" property, and wants to retain such property.
Finally, the debtor may want to take advantage of the lien-avoiding rules only available in chapter 13 proceedings, such as "lien stripping" and "cram downs." "Lien stripping" is when a secured debt is converted into an unsecured debt, and gets treated the same as all of the debtor's other unsecured debt. The most common example of this is a wholly-unsecured junior mortgage. Such a mortgage will get paid partially through a chapter 13 plan, and the unpaid balance will be eliminated along with the unpaid balance of the debtor's other unsecured debt, such as credit cards and medical bills. A "cram down" occurs when a secured loan, having a balance in excess of the value of the collateral securing such loan, is reduced to the value of the collateral. Although the secured portion of the loan will get paid in full, the unsecured portion of the loan (the portion of the loan in excess of the value of the collateral) will be treated the same under the chapter 13 plan as the debtor's other unsecured debt, and will be paid back partially. The most frequent "cram down" target is a car loan.
I like to think of a chapter 7 proceeding as "Plan A", and a chapter 13 proceeding as "Plan B". I will only recommend "Plan B" to a client if one of the above situations is present.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Monday, June 7, 2010
Playing Favorites Among Creditors
Most people with several creditors, feel more loyalty to one or two of them than the others. These preferred creditors are often a favorite store, but are more frequently a friend or relative who lent them money. Let's face it,...favorite creditors are more likely to get paid when money is tight.
A problem can arise, however, when such a payment is made on the eve of filing for bankruptcy. Under the U.S. Bankruptcy Code, such a payment may be deemed a "preferential payment" by the bankruptcy trustee if it is made within 90 days prior to the filing of the bankruptcy petition. The trustee, exercising its "avoiding powers", can force the creditor to surrender the payment to the trustee. If the creditor happens to be an individual related to the debtor, or an entity owned or controlled by the debtor, the trustee can go back up to one year prior to the filing of the bankruptcy petition to recover such payments.
The trustee's power to avoid preferential payments prevents a creditor from receiving more of the debtor's property than that creditor would receive in a Chapter 7 bankruptcy proceeding. As a result, such power promotes equality among creditors, and deters creditors from racing to get at the debtor's property before the debtor files for bankruptcy.
Playing favorites among creditors in the days leading up to a bankruptcy filing is a horrible idea. There's no other way to say it. Imagine having to go to your friend or family member, who helped you in your time of need, to ask them to return all of the payments you made in the past year, because if they don't, a bankruptcy trustee will take them to court to recover the payments. This can put a damper on your relationship.
The rules in this area are detailed, and their application can be complicated. Anyone contemplating bankruptcy who wants to pay certain creditors over others should discuss it with their bankruptcy attorney prior to making any such payments.
To coin a phrase,...an ounce of prevention can avoid a pound of avoidance.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
A problem can arise, however, when such a payment is made on the eve of filing for bankruptcy. Under the U.S. Bankruptcy Code, such a payment may be deemed a "preferential payment" by the bankruptcy trustee if it is made within 90 days prior to the filing of the bankruptcy petition. The trustee, exercising its "avoiding powers", can force the creditor to surrender the payment to the trustee. If the creditor happens to be an individual related to the debtor, or an entity owned or controlled by the debtor, the trustee can go back up to one year prior to the filing of the bankruptcy petition to recover such payments.
The trustee's power to avoid preferential payments prevents a creditor from receiving more of the debtor's property than that creditor would receive in a Chapter 7 bankruptcy proceeding. As a result, such power promotes equality among creditors, and deters creditors from racing to get at the debtor's property before the debtor files for bankruptcy.
Playing favorites among creditors in the days leading up to a bankruptcy filing is a horrible idea. There's no other way to say it. Imagine having to go to your friend or family member, who helped you in your time of need, to ask them to return all of the payments you made in the past year, because if they don't, a bankruptcy trustee will take them to court to recover the payments. This can put a damper on your relationship.
The rules in this area are detailed, and their application can be complicated. Anyone contemplating bankruptcy who wants to pay certain creditors over others should discuss it with their bankruptcy attorney prior to making any such payments.
To coin a phrase,...an ounce of prevention can avoid a pound of avoidance.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Monday, May 31, 2010
The Parent Trap
No, I'm not talking about the Disney movie starring the young, innocent actress Hayley Mills,...later remade with the young innocent actress, Lindsay Lohan. I am talking about the problems your parents can create for you when they transfer assets to you (completely or partially) for their own estate planning purposes.
Parents often transfer assets (usually a home) to their children so the parents' estates may avoid paying back the value of Medicaid benefits (e.g., a nursing home stay) to the State after the parents pass away. This may sound good to some, but serious problems can arise if a child receiving assets becomes insolvent while the parents are still alive, and needs to file for bankruptcy relief.
The transfer increases the child's assets, which can compromise the child's bankruptcy case,...and the parents' estates. This is due to there being only a limited amount of exemptions available to shield assets in bankruptcy.
In a Chapter 7 bankruptcy case, too many assets can result in the sale of the non-exempt assets by the trustee assigned to the case. The fact that the child is only helping their parents will not matter to the United States Trustee's Office. What a tragedy it would be for Mom and Dad to lose their house (which they likely own debt-free) because of their child's bankruptcy, and subsequent inability to protect the house from trustee liquidation.
All too often, a child who is holding assets for a parent is forced into filing a Chapter 13 bankruptcy in order to protect the assets. As a result, the child must endure the more expensive and longer duration bankruptcy proceeding. In a Chapter 13 case, too many assets can result in higher Chapter 13 plan payments. Sometimes, the child cannot afford the higher Chapter 13 plan payment, and is prevented from filing altogether.
Parents who are contemplating a transfer of assets to their children would be wise to make sure their children are not highly leveraged or otherwise in financial distress. Children who are highly leveraged, in difficult relationships, uncertain about job security, etc. would be equally wise not to accept a transfer of assets from their parents.
An open and frank discussion of a child's financial situation with a qualified attorney prior to a transfer of assets from parent to child can avoid substantial harm to the parent's estate, and the child's chance for meaningful debt relief through bankruptcy.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Parents often transfer assets (usually a home) to their children so the parents' estates may avoid paying back the value of Medicaid benefits (e.g., a nursing home stay) to the State after the parents pass away. This may sound good to some, but serious problems can arise if a child receiving assets becomes insolvent while the parents are still alive, and needs to file for bankruptcy relief.
The transfer increases the child's assets, which can compromise the child's bankruptcy case,...and the parents' estates. This is due to there being only a limited amount of exemptions available to shield assets in bankruptcy.
In a Chapter 7 bankruptcy case, too many assets can result in the sale of the non-exempt assets by the trustee assigned to the case. The fact that the child is only helping their parents will not matter to the United States Trustee's Office. What a tragedy it would be for Mom and Dad to lose their house (which they likely own debt-free) because of their child's bankruptcy, and subsequent inability to protect the house from trustee liquidation.
All too often, a child who is holding assets for a parent is forced into filing a Chapter 13 bankruptcy in order to protect the assets. As a result, the child must endure the more expensive and longer duration bankruptcy proceeding. In a Chapter 13 case, too many assets can result in higher Chapter 13 plan payments. Sometimes, the child cannot afford the higher Chapter 13 plan payment, and is prevented from filing altogether.
Parents who are contemplating a transfer of assets to their children would be wise to make sure their children are not highly leveraged or otherwise in financial distress. Children who are highly leveraged, in difficult relationships, uncertain about job security, etc. would be equally wise not to accept a transfer of assets from their parents.
An open and frank discussion of a child's financial situation with a qualified attorney prior to a transfer of assets from parent to child can avoid substantial harm to the parent's estate, and the child's chance for meaningful debt relief through bankruptcy.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Monday, May 24, 2010
Think Twice Before You Cash In Your Retirement
As a general rule, it is unwise to borrow against or liquidate your retirement savings to pay your debts. The U.S. Bankruptcy Code does not require you to liquidate your retirement savings to pay your bills before, or after, you file for bankruptcy relief under Chapter 7 or Chapter 13. Most forms of retirement savings and pensions are protected in bankruptcy proceedings.
Many people facing insolvency do not understand this fact. They withdraw or borrow against their retirement, thinking their financial situation will soon improve. When it doesn't and their financial distress becomes intolerable, they finally seek the help of a bankruptcy attorney. It's usually at the first meeting with the bankruptcy lawyer that the debtors receive the unpleasant news that they did not have to liquidate their retirement savings.
Other fallout from liquidating retirement savings includes the penalties associated with early withdrawals, and the potential for additional income taxes on the amounts withdrawn.
There are some instances when it makes sense to tap into your retirement account to pay your debts, but they are few and far between.
For most of us, the use of retirement funds to pay our debts is a mistake we will regret throughout our golden years, and should be avoided.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Many people facing insolvency do not understand this fact. They withdraw or borrow against their retirement, thinking their financial situation will soon improve. When it doesn't and their financial distress becomes intolerable, they finally seek the help of a bankruptcy attorney. It's usually at the first meeting with the bankruptcy lawyer that the debtors receive the unpleasant news that they did not have to liquidate their retirement savings.
Other fallout from liquidating retirement savings includes the penalties associated with early withdrawals, and the potential for additional income taxes on the amounts withdrawn.
There are some instances when it makes sense to tap into your retirement account to pay your debts, but they are few and far between.
For most of us, the use of retirement funds to pay our debts is a mistake we will regret throughout our golden years, and should be avoided.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Monday, May 17, 2010
About This Bankruptcy Blog
Financial distress can happen to any one of us. It's not something we want, but it happens nonetheless. Our debts can become unmanageable when we experience a reduction in income (get laid off, or reduced hours), an increase in expenses (care for a loved one, or inflation), a medical problem, or a challenging relationship (separation, divorce, etc.).
Those who spend any length of time with bankruptcy matters soon realize that the trials and tribulations of life affect everyone.
That being said, there are some steps you can take to reduce the impact of these events on you and your loved ones. There is no need to compound your distress by making unfortunate or uninformed decisions.
As a bankruptcy attorney, I am writing this blog to provide insight to individuals and small businesses in Massachusetts and Connecticut who are experiencing financial distress and approaching insolvency.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
Those who spend any length of time with bankruptcy matters soon realize that the trials and tribulations of life affect everyone.
That being said, there are some steps you can take to reduce the impact of these events on you and your loved ones. There is no need to compound your distress by making unfortunate or uninformed decisions.
As a bankruptcy attorney, I am writing this blog to provide insight to individuals and small businesses in Massachusetts and Connecticut who are experiencing financial distress and approaching insolvency.
Matthew S. Rousseau, Esq.
Morrison Rousseau, LLP
www.WorcesterBankruptcyAttorney.com
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