Debtor’s Duties: Providing Notice to Creditors

Providing effective notice to creditors: Any notice the debtor is required to give to creditors must contain the debtor’s name, address and last four digits of the debtor’s taxpayer identification number. [11 USC § 342(c)(1)]
(a) [10:62] Adding creditor to schedules: If the notice relates to adding a creditor to the debtor’s schedules of assets and liabilities, the debtor must include the creditor’s full taxpayer identification number in the notice sent to the creditor, but the notice filed with the court shall only contain the last four digits of the taxpayer identification number.

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Debtors Duties

Cooperating with trustee re inventory, proofs of claim and estate administration: The debtor must cooperate with the trustee in preparation of an inventory, examination of proofs of claim and administration of the estate.

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Homeowner’s Exemption

Generally, how much is the exemption?

System 1 for California: CCP 704.730:

$50,000 if single and not disabled;

$75,000 for families if no other member has a homestead (if only one spouse files, may exempt one-half of amount if home held as community property and all of amount if home held as tenants in common);

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What is a Cramdown

“Cramdown,” as it is commonly termed, refers to the process by which a debtor is permitted to restructure his or her debts over the objection of the creditor. A recent interpretation of the Bankruptcy Code regarding borrower cramdown, however, could have enormous repercussions in terms of (1) prospective losses to the lender; (2) loan program re-evaluation and (3) modifications to bankruptcy servicing procedures.

Cramdown is a slang term that refers to the discretionary powers that may be employed by a bankruptcy court when a company is attempting to submit a reorganization plan. Essentially, cramdowns are situations where the court chooses to confirm or amend a plan of reorganization even if some of the creditors involved have serious objections to the final draft of the plan. A cramdown may be employed when the court determines that the company seeking bankruptcy protection is making a sincere effort to do the best it can to recover from a financial setback and continue to function.

While the cramdown is not an uncommon phenomenon, most courts choose to make use of this ability sparingly. Often, the court will entertain detailed explanations from creditors as to why a given plan is not acceptable to one or more of the classes of creditors. At the same time, the court will hear from the company seeking protection through bankruptcy, in an attempt to ascertain all factors relevant to the reorganization. Generally, the court will seek to mediate the situation so that the company and creditors are able to both support the plan. However, if this is not possible, the court can choose to initiate a cramdown and settle the issue.

The cramdown can be in favor of the plan presented by the company, or an alternative plan that is presented by a class of creditors. It is also possible for the court to determine that a third reorganization plan that encompasses elements of previously submitted plans may be in order. Ultimately, the court will attempt to approve the plan that is in the best interests of all parties concerned.

Once the court issues a cramdown, the reorganization plan is approved and the process of bankruptcy will proceed. In the event that the company fails to comply with the terms outlined in the approved plan, the court can also take additional actions that will help to protect the rights of the creditors even though the company has entered into a default situation

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Can unemployment payments be used in calculating the means income?

Yes for Chapter 7 filings. The first step of the Means Test is to compute the average monthly income for debtor and live-in spouse for the past six full months before a bankruptcy filing and see if that is greater than the median income for the debtor’s household size. Such income is defined as excluding benefits received under the Social Security Act. Unemployment benefits are received under the Act but are not direct Social Security benefits, so the official form designers “punted” and allowed the debtor or counsel to disclose it as Social Security or non-Social Security income.

A recent Massachusetts bankruptcy decision ruled that unemployment benefits are Social Security benefits and therefore not countable income. In re Munger. 370 B.R. 21 (Bankr D MA 2007) (Rosenthal, J). This decision has widespread implications, since foster care, day care, and adoption subsidies as well as most forms of welfare (but not Food Stamps) are similar benefits under the Social Security Act (although most recipients might not have to worry about having above-median income).
Unemployment compensation is given special treatment. Because the federal government provides funding for state unemployment compensation under the Social Security Act, there may be a dispute about whether unemployment compensation is a “benefit received under the Social Security Act.” The forms take no position on the merits of this argument, but give debtors the option of reporting unemployment compensation separately from the CMI calculation. This separate reporting allows parties in interest to determine the materiality of an exclusion of unemployment compensation and to challenge it. In plain English this means, report it separately. It may not affect the result of the test. If it does, it will be a “material” issue that the debtor

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What is in the Bankruptcy Estate

Question: The commencement of a bankruptcy case automatically creates a bankruptcy estate. Accordingly, at the time the petition is filed, whether voluntary or involuntary, single or joint, a bankruptcy estate is formed of the debtor’s property, which then becomes subject to administration by a trustee or the debtor-in-possession for the benefit of the debtor’s creditors. The bankruptcy estate includes the debtor’s legal and equitable interests in property owned by the debtor at the time of filing, as well as the proceeds, profits, or rents from such property, certain property to which the debtor becomes entitled within six months of the petition date, and any property interest acquired by the estate after the petition date. For obvious reasons, the timing of the filing of the petition and the timing of the debtor’s receipt of property or income is critical to determining whether property belongs to the estate. Many cases have held that certain types of income or rights to payment that were earned prepetition became property of the estate, notwithstanding the fact that the debtor did not receive the funds until after the filing of the petition.

Question: What exactly does the debtor own at the time of filing in order to determine what must be placed in the estate?

Answer: Section 541(a) provides that all equitable or legal interests of the debtor in property are included within the estate. Section 541(a) is interpreted broadly to include the debtor’s interest in all types of property, including: tangible property, such as real property and vehicles; intangible property rights, such as tax attributes, intellectual property rights, unexpired leases, contract rights, insurance policies, partnership interests, causes of action, and licenses; equitable interests, such as a state law right of redemption in property and a possessory interest in property.

Question: What about property aquired after the petition is filed?

Answer: The estate is entitled to certain property that the debtor acquires, or to which the debtor becomes entitled, within the six months following the petition date, so long as the property would have been included in the estate had the debtor held such interest on the date of filing. The relevant time for determining whether the debtor acquired or became entitled to the property interest within 180 days of the petition date is the date of filing of the original petition rather than the date of subsequent conversion to another chapter. This property falls into three categories.
The first is property acquired by the debtor through bequest, devise, or inheritance. The property must actually be acquired by the debtor by one of these enumerated methods.

The second is property acquired as a result of a property settlement agreement with the debtor’s spouse, or as the result of an interlocutory or final decree of divorce. It should be noted that payments awarded as spousal support or maintenance payments do not become property of the estate under this subsection.

The third category includes property received by the debtor as a beneficiary of a life insurance policy or a death benefit plan. If the debtor is the designated beneficiary at the time of the death of the insured, the debtor will be considered to have become entitled to receive the life insurance proceeds, notwithstanding the fact that the debtor’s interest is contested. It should also be noted that, in the case of joint debtors, if one spouse dies during the 180-day period following the filing of the petition, and the other spouse is the beneficiary of the deceased spouse’s life insurance policy, the proceeds will enter the estate of the beneficiary spouse only. Unless the two debtor estates are substantively consolidated, the life insurance proceeds will be available for payment of only the beneficiary spouse’s creditors.

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Is it illegal for a debt collector to call family etc… to obtain information about the person that owes the debt in TX?

Hello:

While the debt collector is calling your family, there is nothing mandating that your family answer the questions. Keep in mind that they will only call so often before filing suit and trying to collect the money. If you declare Bankruptcy, those debts would assumably be discharged.

Sincerely,

Brian D. Lerner
Attorney at Law
ebankruptcyatty.com

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