May 21, 2019

Gifts vs. Loans – Big Differences in Bankruptcy Court

I recently ran across an interesting blog post from Mark Markus, a bankruptcy lawyer in Los Angeles, who noted that the characterization of a your receipt of money as a gift is significantly different from characterizing that receipt of money as a loan.

If the funds received are a gift, the funds would count as income for means test purposes and these funds (assuming they are not yet spent) would be an asset of your bankruptcy estate and potentially reachable by a bankruptcy trustee.

By contrast, if funds received are treated as a loan, these funds would not count as income for means test purposes, although cash still on hand would be an asset.

Mr. Markus also notes that if you pay back the lender before filing, the repayment could have bankruptcy implications.  He is referring to the issue of preferences, which are provisions of the Bankruptcy Code that allow trustees to recover money from lenders in certain situations.

Your lawyer can advise you regarding the preference issues and about the means test as well as exemptions that can allow you to protect cash and other property from the trustee’s reach.  However, as Mr. Markus points out a threshold question is whether funds received are a gift or a loan.  What are the differences? [Read more…]

Tennessee Bankruptcy Court Web Sites are Sources of Useful Information

Clark and Washington encourages our clients to make use of accurate and free information about bankruptcy that is readily available on the Internet.  Not everything published on the Internet is accurate, of course, but there are a number of web sites that can you trust.

An excellent resource for bankruptcy debtors who file in Chattanooga or Knoxville is the official website for the United States Bankruptcy Court for the Eastern District of Tennessee.  This site contains links to bankruptcy forms, local court rules, written opinions of the judges and general information about the bankruptcy process.   For filers in Nashville, the website for the United States Bankruptcy Court for the Middle District of Tennessee will be an online destination that you should visit.   For individuals filing in Memphis or Jackson, you can check out the web presence of the United States Bankruptcy Court for the Western District of Tennessee.

You should also be aware that federal courts in Tennessee are part of the 6th Federal Judicial Circuit.  This means that other that Supreme Court decisions, rulings by 6th Circuit appellate judges will control how Tennessee bankruptcy judges interpret the law.  Circuit Court or Supreme Court bankruptcy opinions are usually not something that a typical bankruptcy debtor needs to worry about but you should be aware of this hierarchy within the federal bankruptcy courts if you are researching bankruptcy and you run across an opinion from a California bankruptcy judge or an appeallate ruling from the 2nd Circuit.

Clark and Washington lawyers spend time each week studying changes in applicable bankruptcy law and observing trends in the 6th Circuit and in other circuits.  Our firm makes internal continuing legal education a part of our practice and you can depend on Clark and Washington to be both knowledgeable and prepared to represent you when you call.

Bankruptcy Courts Increasing Scrutiny of Bankruptcy Schedules

The past few years have amounted to something of a tranisition period in the bankruptcy world.  In October, 2005, the bankruptcy law changed, requiring debtor lawyers to learn and apply new law and to change office procedures to address new filing requirements.  In the months preceding October, 2005, filing rates zoomed, as families concerned about the uncertainty of the new law filed while the older, more lenient rules applied.

In the months following October, 2005, bankruptcy filing rates dropped dramatically.  Most of the people who were thinking about filing had already done so.  Many bankruptcy lawyers discontinue the practice area because of the changes in the law.  And uncertainty about how the law would be applied and mis-information about the availability of bankruptcy relief kept the numbers down.

Now, in mid-2008, things have changed dramatically.  Debtor law firms are fully up to speed about procedures under the bankruptcy laws and bad economic times have resulted in record numbers of filings.

One of the less publicized changes in the bankruptcy universe after 2005 is the increased scrutiny that debtors will face regarding their schedules.  With filing numbers up and bankruptcy hearing and court rooms crowded, the bankruptcy process may seem almost informal.  However, if you are thinking about bankruptcy you should remember that everything you submit to the bankruptcy court is subject to your oath of truthfulness.  There can be dire consesquences if the information on your schedules is not accurate.

Massachusetts bankruptcy blogger Bill McLeod gives us an example of what can happen if you are not very careful in revealing on your bankruptcy schedules full details of your financial affairs.   Bill writes in his informative blog about a case filed pro se (without an attorney) by a debtor who was a former lawyer.  The schedules contained numerous omissions and inaccuracies, requiring the debtor to file numerous amendments.   Several of the debtor’s creditors filed an Adversary Proceeding to challenge the bankruptcy.  During the course of the adversary hearing, the debtor disclosed that he had student loans and that he had money owed to him.

The bankruptcy judge in this case concluded that this debtor had a reckless disregard for the truth and that his discharge should be denied.   As Attorney McLeod points out, a denial of discharge does not end the case.  The trustee may still gather and sell assets.  At the same time the debtor’s debts will not be forgiven – in other words, the debtor ends up with the worst of two worlds.

We have seen other situations where the court disallowed exemptions, meaning that the debtor not only lost his discharge, but he was not allowed to claim exemptions to keep personal property like clothes and basic household necessities.

This is not to say that you cannot amend your schedules if you legitimately forgot something.  However, if the trustee or creditors sense a pattern of deception, that’s where the trouble begins.

While these denial of discharge or disallowance of exemptions is rare, you need to be aware of the consequences of lying to the court.  If you are not sure about whether to mention something to your lawyer, err on the side of disclosure.  Bankruptcy lawyers use detailed questionnaires for a reason – we want to make sure that we have a complete picture so we can advise you properly.  Work with us to avoid surprises, especially unpleasant surprises.

New Median Income Numbers for Tennessee Bankruptcy Filers on February 1, 2008

The office of the United States Trustee has released new median income numbers for bankruptcy cases filed in Tennessee as of February 1, 2008 and thereafter.  We expect that these numbers will remain in effect until around October 1, 2008.  Here are the current numbers:

 

Tennessee Median Income Numbers
1 person household 2 person household 3 person household 4 person household

each additional

person add…

$36,380 $46,039 $53,337 $61,856 $6,900

You can review the full median income chart at the U.S. Trustee’s web site.

Tennessee Ranks #1 in the Nation for Bankruptcy Filings

The most recent report from the United States Courts Administrative Office reveals that Tennessee leads the nation in bankruptcy filings per population size.   Approximately 1 out of every 59 Tennessee households filed either Chapter 7 or Chapter 13 bankruptcy in fiscal year 2007.   By contrast, just over 1 out of every 100 Alaskans filed bankruptcy during this same time period.

The reports for fiscal year 2008 will be released in March.  It will be interesting to see if there is any change in this disturbing trend.