The Casner case: missing critical bankruptcy deadlines

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. This case shows that a debtor cannot sit on his rights, a skilled bankruptcy attorney will have the implements in place to avoid critical deadlines!

Click here for commentary on this opinion.

 

In re: MARY EVELYN CASNER, Debtor. Case No. 16-00662 (Chapter 7)

MEMORANDUM DECISION AND ORDER

On January 13, 2017, Specialized Loan Servicing LLC filed a motion for relief from the automatic stay regarding the debtor’s real property located at 1332 Independence Avenue, SE, Washington, DC 20003. The debtor’s attorney seeks to continue the hearing on the motion to February 23, 2017.11 Under 11 U.S.C. § 362(e)(1), the automatic stay would terminate on February 13, 2017 (after the passage of 30 days after the filing of the motion for relief from the automatic stay), unless the court, after notice and a hearing, orders the automatic stay to continue pending conclusion of a final hearing.

___________________________

The debtor’s opposition to the motion hints that there is equity in the property. However, the debtor has claimed the property exempt under a District of Columbia statute that permits a debtor to exempt the entirety of the debtor’s residence.

The debtor does not actually assert that there is equity in the property, and a close examination of the debtor’s opposition reveals that there may be no equity. The debtor scheduled the property as worth $833,860 and does not state what she now believes the property is worth, aside from stating that “the stated valuation of the subject property is way below compatible properties sold in the neighborhood which is attached as Exhibit A.” According to the information in that exhibit, the lowest sale price of a neighboring property is $907,000. One ofthe properties listed in the attached exhibit, located at 1311 Independence Ave., SE, on the block across the street from the debtor’s home, sold for $988,500, an amount that, less typical closing costs, would not suffice to satisfy the debt in this case.

The mortgagee in this case claims that the debtor owes $1,564,690.77. The debtor asserts that the mortgagee has overstated the amount owed because “the arrearages calculated by Movant includes principal payments which are added back to the outstanding balance thereby overstating the principal amount due[.]” The debtor also questions certain fees assessed and included in the arrearages.

The debtor does not state what the correct amount owed is, but even if the entire $613,996.72 of arrearages were subtracted from the amount the mortgagee says is owed, $1,564,690.77, a debt of $950,694.05 would still be owed. If the debtor’s property were then sold at the same sales price as that of the nearby property at 1311 Independence Ave., SE, $988,500, factoring in closing costs charged to the debtor that would likely far exceed 4%, the debtor would likely realize less than $950,694.05; thus, there would be no equity in the property. Under 11 U.S.C. § 362(d)(2), relief from the stay would be appropriate because there would be no equity in the property and, in this chapter 7 case, the property obviously is not necessary to achieve an effective reorganization.

Although the time for objecting to the debtor’s exemptions has not expired, the chapter 7 trustee, who represents the interests of the estate and of unsecured creditors in this case, has not seen fit to file a timely opposition to the motion for relief from the automatic stay. If, for some reason, the debtor’s exemption of the property were to be disallowed, the trustee would still be entitled to seek to sell the property, and could seek injunctive relief against any foreclosure sale so that the trustee, using a real estate broker, could realize a higher sales price then might be realized at a foreclosure sale.

The debtor does not represent the interests of the estate and creditors, and having claimed that the property in its entirety is exempt, the debtor is not in a position to contend that the interests of the estate and of unsecured creditors warrants denying relief from the automatic stay. The Bankruptcy Code does not provide to a debtor in a chapter 7 case any tools to modify the rights of a creditor holding a consensual lien on real property. The automatic stay comes into effect when the petition is filed and it maintains the status quo while the parties and the court evaluate whether there is any bankruptcy-related reason to keep the automatic stay in place for the duration of the bankruptcy proceedings. When, as here, no such reason has been articulated, the automatic stay should be lifted.

In any event, the automatic stay has expired in this case.

As the debtor’s petition acknowledges, she filed a prior case in this court, Case Number 16-00333. That case was dismissed in September 2016, and the petition in this case was filed in December 2016. With exceptions of no relevance, 11 U.S.C. § 362(c)(3) provides:

[I]f a single or joint case is filed by . . . a debtor who is an individual in a case under chapter 7 . . . and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, .

. . —

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt . . . shall terminate with respect to the debtor on the 30th day after the filing of the later case[.]

Although 11 U.S.C. § 362(c)(3)(B) permits a party in interest to request a continuation of the automatic stay beyond the 30-day period, § 362(c)(3)(B) provides that any hearing on such a request must be “completed before the expiration of the 30-day period . . . .” More than 30 days have elapsed since the filing of the petition in this case, and therefore the automatic stay has terminated.

It makes no sense to continue the hearing on a motion for relief from the automatic stay when (1) the debtor has failed to articulate any bankruptcy reason why the automatic stay ought to stay in place, and (2) the automatic stay has already terminated by reason of 11 U.S.C. § 362(c)(3)(B). It is thus ORDERED that the debtor’s motion (Dkt. No. 39) seeking to continue the hearing on the pending motion for relief the automatic stay is DENIED.

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

 

 

Debtor loses real estate after missing a critical bankruptcy deadline

From the Bankruptcy Court for the District of Washington DC comes a case stating that Mortgage Servicer did not have to file Motion for Relief from Stay since Debtor had prior case Dismissed within 12 months and did not move to extend Stay.

The debtor does not represent the interests of the estate and creditors, and having claimed that the property in its entirety is exempt, the debtor is not in a position to contend that the interests of the estate and of unsecured creditors warrants denying relief from the automatic stay. The Bankruptcy Code does not provide to a debtor in a chapter 7 case any tools to modify the rights of a creditor holding a consensual lien on real property. The automatic stay comes into effect when the petition is filed and it maintains the status quo while the parties and the court evaluate whether there is any bankruptcy-related reason to keep the automatic stay in place for the duration of the bankruptcy proceedings. When, as here, no such reason has been articulated, the automatic stay should be lifted.

In any event, the automatic stay has expired in this case.

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. This case shows that a debtor cannot sit on his rights, a skilled bankruptcy attorney will have the implements in place to avoid critical deadlines!

 

Click here to read the entire opinion.

 

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Bankruptcy FAQs: Can I File a Medical Bankruptcy?

Frequently Asked Questions about Bankruptcy

I help people file for bankruptcy throughout southern Illinois to help eliminate their crushing debt and protect their assets.  For almost 25 years and in over five thousand bankruptcy filings, I answer many questions people have about the process. I thought I would share some of the more common questions here.

“Can I File a Medical Bankruptcy?”

This question and its variations boil down to “Can I just file on my medical bills?” Unfortunately, the answer is “No”.

You have to list all of your debt when you file bankruptcy – not just your medical bills but credit cards, the loan companies you owe, taxes, child support, student loans even the car loans and the home loans you WANT to keep.

Bankruptcy stops the creditors from collecting on the debt. It does NOT stop you from paying on the debt. You can keep paying the doctor or the loan company (as long as it is a small and reasonable amount).

A bankruptcy attorney can explain your options on how to stay in good standing with those debts you want to keep.

But there is no Medical Bankruptcy. You still have to list and tell the court all of the debts you owe.

***

About the author:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (probate, wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

 

 

3002.1: A Debtor Protection Rule that can Boomerang

Bankruptcy Rule 3002.1: An Unlikely New Weapon Against Debtors

By Craig Andresen, Minneapolis, MN

It has been five years since Congress and the U.S. Supreme Court enacted Bankruptcy Rule 3002.1.  Hailed as a victory for homeowners against greedy mortgage banks, the rule was designed to force banks to certify to the court that the homeowner was current in payments at the conclusion of a chapter 13 case.

While Rule 3002.1 has provided a helping hand to many debtors, an unintended side effect of the rule has threatened to tip the balance against unsuspecting debtors: chapter 13 trustees are using the rule’s reporting mechanism to deny discharges to debtors after they have completed their chapter 13 plan payments.

While it might seem perverse that a rule designed to help debtors is being used to deny their chapter 13 discharges, the trustees have found a sympathetic ear in some of the nation’s bankruptcy judges.

History Behind Rule 3002.1:  Protecting Chapter 13 Debtors

Bankruptcy Rule 3002.1 was enacted after lawmakers became aware that for many debtors who successfully completed their chapter 13 plans, their problems with the mortgage bank were just beginning.  During many chapter 13 cases, the banks were adding bogus or inflated fees for processing payments or otherwise handling the mortgage accounts, without the homeowners’ knowledge.

Then, after the bankruptcy was completed, the bank would demand hundreds or even thousands of dollars in fees to bring the account current, on pain of foreclosure.  Fresh out of the chapter 13 system, the dismayed homeowner typically had no means to pay these fees.  Too often, the demand for payment threw the homeowner into a downward spiral, leading to foreclosure or another chapter 13 filing.

To prevent this, new Bankruptcy Rule 3002.1 required the bank to file a statement with the court whenever it added a fee or charge to the homeowner’s account during the five-year chapter 13 case.  The rule also required the bank to file a statement at the conclusion of the chapter 13, informing the court whether the homeowner had paid all mortgage payments which had come due during the case.

This new Rule 3002.1 process allowed the courts to supervise banks’ conduct during and after the chapter 13, so that homewners would not be driven in and out of the bankruptcy system due to bank misbehavior.

Trustees Using Rule 3002.1 In An Unexpected Way

Now for the problem: because of the enactment of Rule 3002.1, chapter 13 trustees were for the first time routinely served with an official document, prepared by the bank, detailing the history of payments the debtor paid on the mortgage.  This document sometimes revealed that the debtor had missed a payment or two, or maybe even had stopped paying the mortgage altogether due to a financial crisis.

What no one foresaw was that this put the debtor in jeopardy of losing his or her right to the all-important chapter 13 discharge of debts.

Why?  Because for most homeowners, their chapter 13 plan contains two important provisions: (1) that the debtor will continue making mortgage payments and will be retaining the family home, and (2) that the debtor will, for three to five years, make a monthly payment to the trustee for distribution to other creditors.  These two provisions normally constitute the court-approved chapter 13 repayment plan.

At the end of the plan, for a debtor who had completed making all payments to the trustee, but who had not maintained all payments on the mortgage, trustees began to refuse to certify to the court that the debtor had made “all payments under the plan,” as required by bankruptcy code section 1328(a).  In other words, the debtor had made all the trustee payments, but not all the mortgage payments.

“All payments under the plan” meant both the plan payments and the mortgage payments.  This spelled disaster: the debtor could not receive a discharge of debts.

Ironically, Rule 3002.1 created the mechanism that enabled trustees to see the homeowner’s delinquency in mortgage payments — something trustees typically had no way of knowing before the rule’s enactment in 2011.

Growing Number Of Courts Denying Discharge For Missed Mortgage Payments

A handful of chapter 13 trustees around the nation are routinely refusing to certify completion of plan payments for debtors who have missed even one mortgage payment, at the end of the plan.  The number of published bankruptcy cases denying discharge on this basis is growing.  One district has seen an epidemic of such cases: see In re Daggs, No. 10-16518 HRT (Bky. D. Colo. Jan,. 6, 2014); In re Furuiye, No. 10-15854 SBB (Bky. D. Colo. April 7, 2014); In re Gonzales, No. 09-27194 HRT (Bky. D. Colo. June 9, 2015); In re Formaneck, No. 10-20070 MER (Bky. D. Colo. July 13, 2015); In re Cherry, 10-25318 TBM (Bky. D. Colo. Jan. 19, 2016) (granting time to cure default); In re Hort-Kieckhaben, No. 11-13705 EEB (Bky. D. Colo. Feb. 23, 2016); In re Strimbu, 10-19146 MER (March 31, 2016); In re Payer, No. 10-33656 HRT (May 5, 2016) (granting time to cure default); and In re Diggens, No. 10-40335 JGR (Dec. 20, 2016) (loan modification satisfied “all payments” requirement).

What Can A Debtor Do To Avoid This Problem?

Any chapter 13 debtor who owns a home and is continuing payments to the mortgage bank is at risk, unless all the mortgage payments are made during the chapter 13.  The only way for a homeowner to safeguard the right to a chapter 13 discharge is to scrupulously maintain all the mortgage payments.

If mortgage payments are missed during the case, the debtor should consult with his or her lawyer right away.  Solutions could include requesting that the court grant additional time to catch up the payments (as in the Cherry, Payer and Diggins cases noted above), converting to chapter 7, or even (rarely) closing the case without a discharge.

About the author:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (probate, wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Riding the Circuit: Albion, Edwards County, Illinois

As a Mount Vernon, Illinois attorney, I travel throughout the state practicing law and meeting with clients about topics ranging from bankruptcy to estate law, from divorce to litigation. In my travels, I enjoy seeing the courthouses in our county seats. Occasionally in my blog I will stop to describe these wonderful buildings and the towns and cities in which they set.

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Edwards County, Illinois was founded in 1815, before Illinois became a state, and encompassed the northern and central portion of Illinois. By 1821 it had been carved to its present location plus what is now Wabash County.

Edwards_County_Illinois_1815

From Wikipedia:

“In 1821, the county seat of Edwards County was moved from Palmyra to Albion. However, residents of Mount Carmel felt their town should be the county seat. Four companies of militia marched from Mount Carmel towards Albion to seize the county documents stored in the courthouse. The situation was eventually resolved in 1824 by separating Wabash County from Edwards County at Bonpas Creek. The resulting counties remain two of the smallest in Illinois.”

Albion was founded in 1818 made the county seat six years later. The familiar green town limit sign says the population is 2,000. The 2010 census says the population is a more exact 1,988. Abraham Lincoln once visited:  per the Illinois Historical Marker near the school, Lincoln “(s)poke in the oak grove of General William Pickering north of here in the presidential campaign of 1840. He was stumping southern Illinois as a Whig elector for General William Henry Harrison in the Tippecanoe and Tyler Too campaign. In 1861 Lincoln appointed Pickering Governor of Washington Territory.”

Albion Lincoln

The Courthouse was built in 1888 and is the third courthouse to set on its current site. The town square is lined with antique shops, attorneys and doctor’s offices, title companies and (about a block away) a Chinese restaurant! It is nice to see an active downtown in a small town.

The parking lot surrounding the courthouse is brick-lined. There is a huge grandstand in the southeast corner of the courthouse grounds. The grounds also contain the sheriff’s office and the historical society.

The courthouse itself is a large brick building topped by a clock tower. It would fit in nicely at Colonial Williamsburg. The southern part of the courthouse still retains its old charm – creaking and winding staircases and that “old building smell” familiar to anyone who tours eighteenth century buildings.

The northern section of the building was added in 1983 and is thoroughly modern – the courtroom is spacious and comfortable.

Oddly I have not appeared in Edwards County as an attorney often. But I do enjoy wandering the beautiful courthouse – both inside and outside!

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Grayville, West Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Forgetting to list an asset: the Brown case from the Central District of Illinois

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, and pay particular attention to cases close to home!

Here is a case from the Central District of Illinois (the area includes Springfield, Peoria, Champaign, etc. about whether a Debtor either forgot or intentionally left out savings bonds in her statement of assets.

 

United States Bankruptcy Court for the Central District Of Illinois

Case No. 16-70699; Adversary No. 16-7036

Nancy J. Gargula, US Trustee – Region 10, Plaintiff, vs. Arianna Brown, Defendant.

Decided December 29, 2016 by the The Honorable United States Chief Bankruptcy Judge Mary P .Gorman

OPINION

This matter is before the Court following a trial on the complaint of NancyJ. Gargula, the United States Trustee (“UST”), objecting to the discharge of Arianna Brown (“Debtor”). Because the UST failed to meet her burden of proof, judgment will be entered in favor of the Debtor.

  1. Factual and Procedural Background

The Debtor filed her voluntary Chapter 7 petition on April 26, 2016. On her Statement of Financial Affairs (“SOFA”) and Schedule A/B: Property, filed concurrently with her petition, the Debtor failed to disclose her ownership of savings bonds that she purchased shortly before filing bankruptcy. Mariann Pogge was appointed chapter 7 trustee in this case. After an initial and a continued meeting of creditors were conducted by Ms. Pogge, the Debtor filed amended schedules listing the savings bonds and claiming a portion of the value of the savings bonds as exempt.

The UST subsequently filed a Complaint to Deny Discharge against the Debtor. The basis for the complaint was the Debtor’s failure to list her ownership of the savings bonds in her initial schedules, as well as the Debtor’s omission of information regarding the savings bonds at her initial meeting of creditors. The Debtor’s attorneys withdrew from their representation of her, after which the Debtor filed a pro se answer denying any intentional misconduct and attributing the initial non-disclosure to her attorneys’ failure to properly review documents she had supplied to them.

At a trial held on December 12, 2016, both Ms. Pogge and the Debtor testified. Ms. Pogge testified that she routinely asks debtors to provide financial documents, including bank statements showing the balance of accounts as of the petition date. The Debtor gave some bank statements to Ms. Pogge in advance of her creditors’ meeting, including an account statement for the period of February 25 through March 23, 2016. Ms. Pogge noted that the receipt of a tax refund of over $11,000 and two deductions for $2000 each to “Treasury Direct” were reflected on that statement. She asked the Debtor about the deductions at the initial meeting but the Debtor said that she did not recall why the deductions were made. Ms. Pogge continued the meeting and asked the Debtor to prepare an accounting regarding the use of her tax refund and to explain the Treasury Direct deductions. The Debtor was also requested to provide a bank statement showing the account balance as of the petition date.

At the continued meeting, the Debtor provided Ms. Pogge with the requested information. She gave Ms. Pogge a hand-written accounting of the expenditures from her tax refund, which noted $5000 for “Treasury Direct (Savings Bonds).”

According to Ms. Pogge, the Debtor then testified at the continued meeting that she was unaware that she had to list savings bonds on her schedules. Ms. Pogge also testified that, after the Debtor amended her schedules and claimed a partial exemption in the savings bonds, she turned over the value of the non-exempt portion of the bonds.

The Debtor testified that she did not intend to withhold information from Ms. Pogge. She testified that she provided her bank statements to her attorneys, who said they would carefully review the documents because they knew Ms. Pogge would do the same. The Debtor also testified that her attorneys never asked her about the savings bonds, but, on cross-examination, she stated that her lawyers did ask her if she had any savings bonds and she said “no.” As explanation, the Debtor testified that she was not thinking about the bonds, either when meeting with her attorneys or at the initial meeting of creditors, because the funds to purchase the bonds were automatically deducted from her bank account. Neither party offered any argument at the close of trial. The matter is ready for decision.

  1. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. §1334. All bankruptcy cases and proceedings filed in the Central District of Illinois have been referred to the bankruptcy judges. CDIL-Bankr. LR 4.1; see 28 U.S.C. §157(a). Objections to discharge are core proceedings. See 28 U.S.C. §157(b)(2)(J).

This matter arises from the Debtor’s bankruptcy itself and from the provisions of the Bankruptcy Code, and may therefore be constitutionally decided by a bankruptcy judge. See Stern v. Marshall, 564 U.S. 462, 499 (2011).

III. Analysis

The UST’s complaint is brought under §727(a)(4)(A) of the Bankruptcy Code. That provision requires denial of a Chapter 7 debtor’s discharge if “the debtor knowingly and fraudulently, in or in connection with the case—(A) made a false oath or account[.]” 11 U.S.C. §727(a)(4)(A). A plaintiff seeking to deny a debtor’s discharge under §727(a)(4)(A) “must prove by a preponderance of the evidence that: (1) the debtor made a statement under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with fraudulent intent; and (5) the statement related materially to the bankruptcy case.” Stamat v. Neary, 635 F.3d 974, 978 (7th Cir. 2011). A debtor’s fraudulent intent can be established by showing either intentional misrepresentations or a reckless disregard for the truth. Id. at 982. Exceptions to discharge under §727(a) are construed strictly against the plaintiff and liberally in favor of the debtor. Id. at 979 (citations omitted).

The first, second, and fifth elements of the test described in Stamat are clearly met in this case. Statements made by a debtor at a meeting of creditors or in the debtor’s bankruptcy petition, schedules, or SOFA are all considered to be under oath for the purposes of §727(a)(4)(A). John Deere Co. v. Broholm (In re Broholm), 310 B.R. 864, 880 (Bankr. N.D. Ill. 2004). A fact is material if it relates to the debtor’s financial dealings or the existence and disposition of the debtor’s property. Stamat, 635 F.3d at 982. Here, the Debtor failed to disclose assets and financial transactions on her schedules and SOFA. She also testified falsely at her initial meeting of creditors that her bankruptcy forms were complete and accurate.

These misstatements and omissions related to property of the estate. The false statements regarding the completeness of the Debtor’s schedules and the lack of ownership of any savings bonds were material to the bankruptcy.

The UST did not, however, meet her burden of proof as to the Debtor’s state of mind at the time of the false statements. The Debtor testified that she relied on her attorneys to complete her bankruptcy forms accurately, and that she did not realize she omitted information pertaining to the savings bonds because the bonds were automatically purchased using her tax refund. But before her initial meeting of creditors, she provided bank statements to Ms. Pogge that showed the deductions for Treasury Direct. And the Debtor quickly provided Ms. Pogge with the additional information requested following that initial meeting. When accounting for the use of her tax refund, the Debtor candidly identified the Treasury Direct deductions as savings bond purchases. Once it was determined that the savings bonds were property of the estate, she promptly amended her schedules and turned over the value of the non-exempt portion of the bonds.

The Debtor credibly testified that her omission of the savings bonds from her bankruptcy statements and creditors’ meeting testimony was an oversight.

The fact that the Debtor has otherwise been forthcoming in this case supports her position. Nothing whatsoever was presented by the UST from which an inference could be drawn that the Debtor intended to make a knowingly false statement.

Based on the totality of the Debtor’s conduct in this case and her unrebutted testimony at trial, the Court concludes that the Debtor’s misstatements and omissions were innocent mistakes, and that she did not make knowingly false statements with fraudulent intent.

  1. Conclusion

The UST did not meet her burden to prove that the Debtor knowingly and fraudulently made a false oath in connection with this case. Clearly, the Debtor omitted material information regarding the savings bonds from her bankruptcy forms and initial meeting of creditors’ testimony. All evidence suggests, however, that the omission of the savings bonds from the initial disclosures was an inadvertent error and not the result of the type of reckless disregard or intentional fraud that would support the denial of her discharge.

Nothing in this Opinion should be construed as condoning omissions or misstatements in bankruptcy paperwork or creditors’ meeting testimony. To the contrary, accuracy is required. But every omission does not justify a denial of discharge and here the Debtor turned over documents which disclosed her ownership of the savings bonds to both her own attorneys and to Ms. Pogge before she was questioned about her assets. Under these precise and limited circumstances, a denial of her discharge is not warranted. Judgment will therefore be entered in favor of the Debtor and against the UST. The Debtor will receive her discharge.

***

Click here for commentary on this case.

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

I forgot to list an asset! Is my bankruptcy case doomed?

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, and pay particular attention to cases close to home!

I posted the Opinion in Gargula v. Brown (16-70699, Adv. # 16-7036) from the Central District of Illinois (the area includes Springfield, Peoria, Champaign, etc.) about whether a Debtor either forgot or intentionally left out savings bonds in her statement of assets.

Everyone forgets: the junk car in your back yard that still has a title and is still in the Secretary of State Database; your name is on your daughter’s bank account; the credit union savings account they made you open when they financed your car; the little bit of retirement you had from that job back in 2012; that hospital bill; the loan you co-signed with your grandson …

But honestly forgetting something in your bankruptcy schedules does not spell doom for you or your bankruptcy. If you and your attorney made an exhaustive effort to list all of your assets, income, expenses, debts, and so forth, in your bankruptcy schedules – and make swift efforts to correct the schedules – you should have no problem (you might have to turn in the car or the cash or incur more money to list the debt, but as far as being in “trouble” with the court, you should be fine).

When people do get into trouble, it is because they INTENTIONALLY hid an asset. They put money into someone else’s bank account, they transferred title to a vehicle to someone else, everything from funds to furniture seem to disappear overnight, etc.

In this case, the Debtor forgot that some of her tax refund money automatically goes to purchase savings bonds. Judge Gorman analyzed the demeanor of the Debtor and her actions upon the discovery of the missing asset (that is, quickly amending her schedules and handing the funds over to the Trustee). The intent, it was ruled, was not there.

This is why, it seems, some attorneys badger you about the information required in the bankruptcy schedules.

You will be asked about stocks and bonds and savings bonds.

Do you have any personal injury claims or worker’s compensation claims? Have you seen an attorney or talked to an attorney about any personal injury claims or worker’s compensation claims? Isn’t that the same question? Not really.

So let your attorney ask silly questions Let him or her repeat silly questions. It’s to help you remember – and don’t keep anything back! Your attorney should thank you for bringing up even the smallest matter – because it might make a difference!

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Illinois County Courthouses: Lovely Louisville!

As a Mount Vernon, Illinois attorney, I travel throughout the state practicing law and meeting with clients about topics ranging from bankruptcy to estate law, from divorce to litigation. In my travels, I enjoy seeing the courthouses in our county seats. Occasionally in my blog I will stop to describe these wonderful buildings and the towns and cities in which they set.

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Louisville, Illinois is the county seat of Clay County. The green city limits sign, so familiar to anyone who travels Illinois’ highways, says its population is 1,200. Wikipedia says 1,139.

Clay county

The courthouse is a few blocks east of the major highway (US 45) running north and south of the town. It sets on a hill overlooking the town square. In its prime it must have been the place to be. It takes little imagination to see the townsfolk sitting on its benches laughing, talking and solving all the problems of the world. Children playing tag; men playing checkers; picnics on the lawn during the 4th of July with fireworks blasting overhead.

From Wikipedia:

“The Clay County Courthouse, located at 300 Broadway Street in Louisville, is the county courthouse serving Clay County, Illinois. Built in 1913, the courthouse was Clay County’s fourth courthouse; it has served continuously as the seat of Clay County government since its opening. Architect Joseph W. Royer, who planned several other Illinois courthouses, designed the Classical Revival building. The courthouse was added to the National Register of Historic Places in 2015.

Clay County was formed in 1824, and its county commissioners established its first county seat in Hubbardsville the following year. Local landowner Daniel May donated the land for and built the county’s first courthouse, a wooden building; the county seat was renamed Maysville in his honor. The Illinois State Legislature ordered a meeting of the county commissioners in 1841 to discuss relocating the county seat, and the commissioners decided to move the seat to Louisville. After some legal difficulties, Louisville’s first permanent courthouse opened in 1846. Clay County received its third courthouse in the 1870s, when a two-story Italianate building replaced the 1846 courthouse. Throughout the late 19th century, the citizens of Flora attempted to relocate the county seat to their city; however, Louisville won two relocation votes in 1861 and the early 1900s and kept the seat. The county planned to remodel its courthouse; however, it ultimately opted to build an entirely new building. This building, the current courthouse, was completed in 1913. Louisville’s newspaper, the Southern Illinois Record, initially showed some editorial skepticism as to the need for a new building; by the time of its completion, though, it had rallied behind the new courthouse, which it described as one of the finest in Southern Illinois. The 1913 courthouse has housed the county’s many government functions and kept its public records since its construction.

Architect Joseph W. Royer of Urbana, Illinois designed the courthouse. Royer designed many government buildings across the Midwest throughout his career; his other designs in Illinois included courthouses in Champaign, Douglas, Marion, and Piatt counties. Royer used the Classical Revival style, which became popular in America in the 1890s and remained so through the 1940s, for the courthouse. The building is situated on a mound in Louisville’s village square and is the highest and most prominent building in the city’s downtown. The two-story structure has a square main block with slightly shorter wings on the east and west sides. The main entrances to the courthouse are located on the north and south sides of the building; the south entrance, which was originally the front entrance, has more ornamentation than its northern counterpart. Both sides have three bays in the central block and one each on the wings; the central bays are demarcated by four Tuscan columns. Both entrances are topped by a transom and segmental arch, with a panel between the two on the south side; windows with bracketed entablatures adjoin each entrance. A balustrade encircles the roof’s edge and is punctuated by a pediment with a cartouche above the south entrance. Interior decorations include Doric columns, fretwork floor tiles, Roman-style grilles, and architrave trim.”

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The courthouse sets in a brick-lined square surrounded by antique stores, title companies, attorneys’ offices and the local newspaper. In the northwest corner of the courtyard sets some millstones from (at the latest) 1880.

The courthouse building is pillaried and stately.  The interior opens into a huge lobby ringed with courtrooms and clerks’ offices. The tiled floor looks original and is lovely. Equally impressive are the courteous deputies at the entry and in the courtrooms and the friendly and very helpful clerks.

I enjoy listening to the echoes while standing in the huge lobby; it takes you back to the beginning of the twentieth century. You expect to see Gregory Peck in a seersucker suit walking down the winding staircase. The building conveys dignity. I love the place and am always pleased when I know I am heading north to practice before their bar on some motion or other hearing.

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About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Flora, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Ex-wife’s interest in former marital property is a non-avoidable mortgage in bankruptcy – the full Sarazin/Sternat case

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. Here is a case from Wisconsin, which is part of the same circuit that southern Illinois is in. That means if the same issue happens here, this case will be closely reviewed!

This involved marital debt, which is a constant concern in many bankruptcy cases.

Read the summary of the case here.

 

REBECCA SARAZIN, Appellant, v. SHAWN STERNAT, Appellee.

Case No. 16-CV-1117-JPS, Bankruptcy Case No. 15-21681.

United States District Court, E.D. Wisconsin.

January 18, 2017.

Rebecca Sarazin, Appellant, represented by Christopher T. Kolb, Halling & Cayo SC.

ORDER

J.P. STADTMUELLER, District Judge.

On August 19, 2016, this appeal was taken by the appellant Rebecca Sarazin (“Sarazin”) from an August 5, 2016 order of the bankruptcy court in bankruptcy case number 15-21681. (Docket #1). The order overruled Sarazin’s objection to appellee Shawn Sternat’s (“Sternat”) homestead exemption and granted Sternat’s motion to avoid Sarazin’s judicial lien. (Docket #1-2). The appeal is now fully briefed. (Docket #5, #6, and #7). For the reasons explained below, the Court will reverse and remand this matter to the bankruptcy court for further proceedings.

  1. JURISDICTION AND STANDARD OF REVIEW

Sarazin timely filed her Notice of Appeal on August 19, 2016, fourteen days after the bankruptcy court’s order (Docket #1-2). Bankr. R. 8002(a)(1). This Court has jurisdiction of this appeal because the underlying order conclusively determined the status of Sarazin’s claim. Schaumburg Bank & Trust Co., N.A. v. Alsterda, 815 F.3d 306, 313 (7th Cir. 2016). The Court reviews the bankruptcy court’s findings of fact for clear error and its legal conclusions de novo. In re Marcus-Rehtmeyer, 784 F.3d 430, 436 (7th Cir. 2015).

  1. FACTS

The relevant facts are brief and undisputed.[1] Sternat and Sarazin filed for divorce in state court in 2012. In September 2014 the circuit court, inter alia, divided the marital assets and liabilities via a judgment of divorce (the “Divorce Judgment”). (Docket #5-1 at 64-77). The Divorce Judgment granted Sternat the marital home (the “Home”), the primary asset of value between them, and assigned most of the marital debts to Sarazin. Id. at 75-76. To remedy this imbalance, the court ordered that Sternat make an equalization payment to Sarazin. Id. at 76. The Divorce Judgment described the payment as follows:

Equalization. Based on the above division, the court orders that to equalize the division of assets and debts, [Sternat] is to pay to [Sarazin] an equalization payment of $178,923.00, which judgment is hereby granted in favor of [Sarazin] and against [Sternat].

The court finds that the IRS, WI Dept. of Revenue, and Loans from Shirley Wiedemeier debts [sic] described above are all marital debts.

Because the marital residence is the only remaining asset of value, it is hereby ordered to be sold to pay these debts as an equalizing payment from [Sternat] to [Sarazin], as soon as reasonably practical. Id.

Sternat did not sell the Home or make the equalization payment. He instead filed for Chapter 13 bankruptcy protection. Sarazin filed a claim for the equalization payment. She objected to Sternat’s attempt to apply the homestead exception to the Home, and Sternat filed a motion to avoid Sarazin’s lien. The bankruptcy court order under review resolved both issues simultaneously. (Docket #1-2).

  1. ANALYSIS

Before the bankruptcy court, Sarazin argued that the Divorce Judgment had awarded her a mortgage lien, rather than a judicial lien. (Docket #5-1 at 47-49). The bankruptcy court found that Divorce Judgment was merely a judicial lien, concluding that Sarazin had conceded the point. Id. at 55.[2] This is a question of law, which the Court reviews de novo, and it concludes that this finding was erroneous. The Divorce Judgment awarded Sarazin a mortgage under Wisconsin law.

This result is dictated by the Wisconsin Court of Appeals opinion in Klemme. There, a husband (Robert) and wife (Patricia) were granted a judgment of divorce. Klemme v. Schoneman, 477 N.W.2d 77, 77 (Wis. Ct. App. 1991). The judgment incorporated a stipulation concerning division of marital property. Id. at 78. With respect to the marital home, it provided as follows:

[Robert] shall be awarded all right, title and interest in the real property located at 2716 Michigan Avenue, Sheboygan, Wisconsin, [legal description omitted] and [Patricia] shall be divested of all right, title and interest therein subject to the following cash settlement which shall remain as a lien against said property until paid:

[Robert] shall pay [Patricia] the sum of Five Thousand Eight Hundred ($5,800.00) Dollars payable in the following manner: $1,500.00 to be paid within thirty (30) days of the divorce hearing; $1,500.00 bearing interest at 12% per annum from the date of the divorce hearing to be paid nine (9) months from the date of the hearing; $1,500.00 bearing interest at 12% per annum from the date of the divorce hearing to be paid twelve (12) months from the date of the hearing; $1,300.00 bearing interest at 12% per annum from the date of the divorce hearing to be paid fifteen (15) months from the date of the divorce hearing. Upon payment of the final installment [Patricia] shall execute such documents of title as necessary to terminate her lien against the real estate. Id. at 78 n.2.

Robert failed to pay the entire settlement amount and filed for bankruptcy, listing Patricia’s lien as a debt to be discharged. Id. He obtained discharge. Id. After some further filings in the family court, Patricia attempted to foreclose her lien on the marital home. Id. Robert argued that the lien was non-existent as it had been discharged in bankruptcy. The trial court ruled in Patricia’s favor, finding that the lien was a mortgage which could not have been discharged. Id.

The appellate court upheld that ruling. Id. at 81. It relied heavily on the Wisconsin Supreme Court’s Wozniak decision. Wozniak held that divorce judgments could create mortgage, rather than judicial, liens, depending on the characteristics of the judgment. Wozniak v. Wozniak, 359 N.W.2d 147, 150 (Wis. 1984). The characteristics to be considered include: 1) whether the subject interest is expressed as a lien, 2) whether the lien is attached to a particular piece of property, 3) whether the lien is meant to guarantee payment of a particular sum of money, 4) whether the underlying debt accrues interest, and 5) whether the debt is due on a particular date. Klemme, 477 N.W.2d at 80. Wozniak further observed that no particular characteristic is essential, but that the critical inquiry is the intention behind the lien:

“Whatever be the form of the transaction, if intended as a security for money, it is a mortgage and the right of redemption attaches to it. . . . The purpose of the instrument is the controlling feature under all circumstances. If that is security . . . the instrument is treated as a mortgage and nothing else.” Id. at 80-81 (quoting Wozniak, 359 N.W.2d at 150).

Applying the Wozniak factors, Klemme found that the divorce judgment constituted a mortgage lien. Id. at 80. Although it did not include language permitting Patricia to foreclose her lien, the omission was not dispositive. Id. Instead, Klemme noted that “the purpose of Patricia’s lien was security for the future payment of Robert’s balancing payment of the property division. It is this [intent] aspect of Wozniak that truly controls this case.” Id. at 81. Finally, Robert argued that Klemme’s holding would convert every divorce judgment into a mortgage lien. Id. The court rejected the notion, holding that a factual, case-by-case analysis is required by Wozniak. Id. It closed by stating that “[w]hile [the Wozniak analysis] may in most cases result in a declaration of a mortgage lien, neither Wozniak nor this case create an ironclad rule.” Id.

While not identical to Klemme, this matter shares more than enough common features for this Court to follow Klemme’s guidance. The Wozniak factors are present to at least some degree. Though the Divorce Judgment does not use the words “lien” or “mortgage,” Sarazin argues that Wisconsin courts emphasize substance over form, citing Klemme as a prime example. The Divorce Judgment attaches the lien only to the Home, and no other marital property, thereby distinguishing it from a judicial lien. Id. at 80 (“[A] mortgage serves as security for a particular piece of property, while a judgment lien ordinarily is not a lien on any specific real estate of the judgment debtor but is a general lien on all of the debtor’s real property.”). Further, the lien is specifically intended to ensure that Sternat sells the home to procure funds for the equalization payment. Though the equalization payment does not accrue interest, the “as soon as reasonably practical” language provides a timeliness component. (Docket #5-1 at 76). Sternat maintains that the Divorce Judgment lacked key mortgage characteristics, namely rights of redemption and/or foreclosure. As noted above, Klemme found that such language would favor finding a mortgage lien, but its absence is not conclusive in that regard. Klemme, 477 N.W.2d at 80.

The Court finds that these factors weigh in favor of finding a mortgage lien, albeit to a lesser extent than they did in Klemme. This case appears to be a few steps removed from Klemme; the word “lien” is not used and there is no precise payment date or specific payment arrangements. Nevertheless, this Court concludes, as did Klemme, that beyond an analysis of the Wozniak characteristics, the intent question determines the outcome. The Divorce Judgment gave the Home to Sternat. It then ordered Sternat to make the equalization payment, and in the same breath directed that the Home be sold to create the funds necessary to effectuate the payment. The intent was that the Home be transferred to Sternat and immediately liquidated to fund the payment. This intention to use the Home as security for the equalization payment controls, and dictates that the Divorce Judgment created a mortgage lien. Id. at 80-81.[3],[4]

  1. CONCLUSION

Sarazin has a mortgage lien on the Home by virtue of the Divorce Judgment. The bankruptcy court’s finding to the contrary was erroneous. The bankruptcy court’s decision will, therefore, be reversed, and the matter remanded to it for further proceedings consistent with this opinion. Sarazin suggests that her mortgage lien is nondischargeable, but this Court will leave that and any other bankruptcy-specific determinations to the bankruptcy court.

Accordingly,

IT IS ORDERED that the order of the bankruptcy court under review (Docket #1-2) be and the same is hereby REVERSED; and

IT IS FURTHER ORDERED that this matter is REMANDED to the bankruptcy court for further proceedings consistent with this opinion.

[1] These facts are drawn from the bankruptcy court’s memorandum opinion (Docket #5-1 at 53-60) unless otherwise noted.

[2] Sarazin’s position is admittedly unclear in her brief submitted to the bankruptcy court. The bankruptcy court cited her “concession” in the first page of her brief, where she argued in favor of a “judicial and equitable lien,” without mentioning a mortgage lien. (Docket #5-1 at 38, 55). The vast majority of the brief, and the conclusion, are also silent on the mortgage issue. See id. at 38-46, 49-52. Nevertheless, the mortgage issue is mentioned and appears to be properly before the Court (Sternat has not argued, for instance, that the point was waived).

[3] Sternat may lament, as did Robert, that this ruling will convert all divorce judgment liens into mortgage liens. As noted above, even assuming that many such liens would be viewed as mortgages, Klemme foresaw no problems with that result so long as the Wozniak analysis was undertaken. Klemme, 477 N.W.2d at 81. This Court is not at liberty to disagree with Klemme’s interpretation of Wisconsin law.

[4] The Court need not reach the parties’ arguments about whether Sternat can avoid any supposed judicial lien. Klemme, 477 N.W.2d at 79-80; see Farrey v. Sanderfoot, 500 U.S. 291 (1991).

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, McLeansboro, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

 

Ex-wife’s lien on former marital home is not avoidable in bankruptcy – a summary.

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. Here is a case from Wisconsin, which is part of the same circuit that southern Illinois is in. That means if the same issue happens here, this case will be closely reviewed!

It involves marital debt … a constant concern in bankruptcy.  This involved a debtor failing to sell a piece of marital property as ordered in a divorce decree…

From January 18, 2017.

Eastern District of Wisconsin: Ex-wife Creditor had a Non-avoidable Mortgage Lien on former couple’s marital home, which ex-husband Debtor Failed to Sell as Required by Divorce Decree

The Court finds that these factors weigh in favor of finding a mortgage lien.

This case appears to be a few steps removed from Klemme; the word “lien” is not used and there is no precise payment date or specific payment arrangements. Nevertheless, this Court concludes, as did Klemme, that beyond an analysis of the Wozniak characteristics, the intent question determines the outcome. The Divorce Judgment gave the home to Sternat. It then ordered Sternat to make the equalization payment, and in the same breath directed that the home be sold to create the funds necessary to effectuate the payment. The intent was that the home be transferred to Sternat and immediately liquidated to fund the payment. This intention to use the home as security for the equalization payment controls, and dictates that the Divorce Judgment created a mortgage lien.

A couple’s divorce judgment granted a non-avoidable mortgage lien in favor of the ex-wife against the marital home, which the ex-husband failed to sell as required before he entered bankruptcy, a Wisconsin federal judge has concluded in reversing a bankruptcy court ruling.
Read the entire case here.

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Flora, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.