A new interim federal rule, 31 C.F.R. Part 212 promulgated by the U. S. Treasury Fiscal Service [FN1] goes into effect May 1, 2011 protecting federal benefits automatically deposited into bank accounts from restraint or execution by judgment creditors. The interim rule applies to all banks and credit unions chartered by any state or by the federal government. The amount protected in the account from restraint or execution is the total amount of all exempt benefits deposited in the previous two months, or the balance in the account as of the day the restraint is received, whichever is less. So, if $3,000 in social security funds were deposited in the previous two months, then the bank balance, up to $3,000, is exempt from restraint. This is more generous (from the perspective of the debtor) than New York's LIBR (lowest intermediate balance rule) of accounting. The new interim rule applies only to Social Security, SSI, Veterans, Railroad Retirement and Federal Government employees retirement benefits. Other exempt federal benefits may be added later, by rulemaking. This interim rule does not apply if the garnishment is for child support or by the United States Government. Here is one feature that could be very significant for New York debtors: funds deposited afterwards cannot be frozen or seized, so that the bank does not have to continually monitor the account for subsequently deposited exempt benefits (212.6(f)). So even if an account contains no protected funds, the restraint or execution only applies to the money in the account on the date of receipt. No more worrying about the paycheck or the tax refund check that is automatically deposited into a restrained account a week later.
A judge form the Bankruptcy Court for the Northern District of New York has ruled that the recent Supreme Court decisions in Hamilton v. Lannin, 130 S. Ct. 2464, 2468-69 (2010), and Ransom v. FIA CardServices, 131 S. Ct. 716 (2011), do not permit a bankruptcy court to disallow "means test" expenses in calculating the minimum payment to unsecured creditors in an above-median income Chapter 13 case. In re Joest, Ch. 13 Bk #10-60028; Bankr. NDNY, Hon. Diane Davis, decision March 17, 2011.) The specific issue in Joest was whether a single debtor (no dependents) with income above the median in New York who has two car loans can deduct the 'ownership cost' for both in calculating 'projected disposable income' in a Chapter 13 case. The debtor, represented by attorney Steven R. Dolson, Esq., said yes; the chapoter 13 trustee, Mark W. Swimlar (represented by staff attorney Maxsen D. Champion, Esq.) siad no. The court went with the debtor.
A bill has been introduced in the New York State Assembly and Senate that would allow lenders to pay off property taxes in exchange for the tax lien, with the consent of the property owner. Assembly Bill A6348 was introduced March 15 by Democratic Buffalo Assembly Member Sam Hoyt, with multiple co-sponsors. An identical bill was interduced in the New York Senate (S.2976) by Western New York Republican Senators George D. Maziarz and Michael F. Nozzolio. I wish to express my appreciation to Russ Haven, legislative counsel for New York Public Interest Research Group, Inc. (NYPIRG) for bringing this piece of legislation to my attention. The bill would allow a property owner to agree to let a lender pay off their property taxes, in exchange for the property tax lien. The property owner and the lender would enter into an agreement to pay the lender back for the property taxes. This loan could carry an interest rate of 1.5% per month, plus costs, and could be enforced by a foreclosure.
I wrote on March 9 about the Agard bankruptcy decision by the Easterd District of New York Bankruptcy Court, issued February 10, finding that MERS (Mortgage Electronic Registration Systems. Inc.) did not have thge authority, under New York law, to assign a mortgage.
Elizabeth Warren, a Harvard Law School bankruptcy professor tapped by President Obama to chair the committee organizing the new Consumer Financial Protection Bureau (see, Dana Milbank article Sept. 16, 2010, by Bradly Dennis), has come under fire from Republicans in her new position (see, Washington Post analysis by Dana Milbank, March 16, 2011; New York Times column by Paul Krugman, March 20, 2011.)
The Bankruptcy Committee of the Monroe County Bar Association is sponsoring a Continuing Legal Education seminar on Chapter 7 basics, to be held at the Bar Center, One West Main Street (5th Floor) Rochester, on Friday April 8 from 12:15 to 3:00 PM. This CLE is intended to provide an introductory-level review of basic Chapter 7 bankruptcy concepts. The full name of the CLE suggests its intent: "Chapter 7 Basics: Dipping Your Toe in the Water."
In Chapter 13, a debtor's plan payment must, at a minimum, reflect the difference between the debtor's income and expenses, so a debtor with monthly income of $3,000 and expenses of $2,500 must, at a minimum, pay $500 to the plan. A plan which fails to pay this disposable income minimum can be denied confirmation on the grounds the debtor's plan was not filed in good faith, under Bankruptcy Code Section 1325(a)(3). But must social security income be included in this income/expense calculation? No, says a bankruptcy judge in Syracuse.
In re Burnett (NDNY Ch. 13 Bk. #10-31788; joint decision with In re Uzailko;
Hon. Margaret Cangilos-Ruiz; decision January 21, 2011).
The Second Circuit Court of Appeals has formally posted the opening for the Rochester Bankruptcy Judge. The deadline for applications is Noon on Friday, April 15, 2011.
The private system for registering mortgages around the country is coming under increased attach by foreclosure and bankruptcy courts, according to the New York Times. And now a bankruptcy judge on Long Island has questioned the whole concept of the system. In an article by Michael Powell and Gretchen Morgenson, dated March 6, 2011, the current status of the MERS Corporation is reviewed and explored. MERS - the Mortgage Electronic Registration Systems - is a private company located in Reston, VA, which purports to be the holder of 60 million mortgages, even though it actually loans no money and has fewer than 50 employees. And Bloomberg News (Article by Thom Weidlich, dated Feb. 14, 2011) reports on the Long Island bankruptcy case , where the judge ruled that the MERS does not appear to have the authority to assign mortgages (more on that case below.)
Occasionally we have to deal in bankruptcy with debtors who own a "remainder interest" in real estate. This can happen when the debtor's parents have engaged in Medicare planning and deed their home to their kids (typically), retaining a "life estate." This means the parents remain the legal owners of the property so long as they are alive, and, upon their passing, the children will become full owners of the property. If one of the children who owns part of the future, or "remainder" interest in the property files bankruptcy, how would the asset be valued? The IRS deals with this issue all the time, in valuing for gift tax purposes the transfer today of a future interest in property. At least in the Bankruptcy Court in Rochester, trustees use the same calculation method as the IRS. The IRS has a publication, http://www.irs.gov/pub/irs-pdf/p1457.pdf, describing the methodology. To make the calculation you need three pieces of information. First you need a current appraisal or valuation of the property. Secondly, you need to know the age of the life estate owner or owners. Finally, you need the applicable interest rate.
It has been a while since I have reviewed the policy of our local utility, Rochester Gas and Electric, as to what they do when someone who owes them money files bankruptcy. My friend, attorney Christopher K. Werner, Esq. of Boylan Brown took the trouble of calling Kim Mays of the Bankruptcy Department at RG&E, and I appreciate him sharing with me what he learned. Basically, if they are a creditor in the case, RG&E will assert a security deposit of two months of average billing, to be paid within 30 days of when they send out the security deposit request.
Census data will result in a revision in the applicable means test figures, effective March 15, 2011. The applicable median income in New York State after that date will be revised as follows:
Bankruptcy has always favored business debtors over consumer debtors. Bankruptcy Code Section 707(b) specifically reflects this: it allows consumer debt cases to be dismissed if abusive but not business debt cases. 'Abuse' usually means a debtor with sufficient income to pay necessary household expenses and still pay money to creditors. But historically, bankruptcy in America has allowed people who pursue business to start over; forgiving failure is essential to encouraging success. A recent case in Michigan threatens this policy. There, a bankruptcy judge could not get past the gratuitous opulent lifestyle of a pair of upper class debtors and allow them to walk away from a Florida land deal gone bad. In re Rahim & Abdulhussain; Bankr. Eastern District of Michigan, Southern Division Chap. 7 bk #10-57577; Hon. Steven Rhodes; decision Dec. 16, 2010 (on appeal.)
The most recently filed bankruptcy case filed in the Rochester Division of the Western District of New York (today, March 2) is the 349th case filed in 2011. Bankruptcy case filings were way down in the first three weeks of January, as attorneys were holding off filing, waiting for the exemption law change effective January 21. But even with the larger number of cases filed since then, the local cases are way down from prior years. In 2010, case #349 was filed February 25, while in the three years prior to that the same case number was filed Feb. 17, Feb. 19 and Feb. 16.