Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

Can I or Should I File a Motion to Reopen My Bankruptcy Case?

By Ryan C. Wood

Bankruptcy cases normally close for two reasons: 1) all of the requirements have been fulfilled and the allowable debts have been discharged or 2) one or more of the requirements have not been completed as requested and the bankruptcy case has been dismissed. The debts in cases that have not met all the requirements that are closed have not been discharged. If you need anything further from the bankruptcy court after the closure of your case you need to file a motion to reopen your bankruptcy case. Pursuant to 11 U.S. §350(b), “A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.” Federal Rules of Bankruptcy Procedure Rule 9024 indicates a motion to reopen a bankruptcy case is not subject to the one year limitation prescribed in the Federal Rules of Bankruptcy Procedure Rule 60. This means that you may bring your motion to reopen a case years after your case was closed. The court charges a filing fee to reopen your case. So why would you want to reopen your bankruptcy case? Here are several more common reasons why you may want to do so:

1. You did not File a Financial Management Certificate with the Court

One of the requirements in receiving a discharge pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is that you take a mandatory financial management course. This class provides information about managing your finances and attempts to teach you how to budget. Once you complete the course you receive a certificate of completion. This certificate is also referred to as the financial management certificate. You need to file this certificate with the court in order to receive a discharge of your debts. If you do not file this certificate with the court your bankruptcy case is closed without a discharge. This means that all your hard work leading up to and including the bankruptcy filing is for naught as the creditors can still try to collect their debt from you after the bankruptcy case is closed. This is true even if you were in a Chapter 13 bankruptcy case and you made all the required payments to the Chapter 13 trustee according to your Chapter 13 plan. If your case is closed without a discharge because of the non-filing of the financial management certificate, the fix is simple: contact your bankruptcy attorney to reopen your bankruptcy case (and pay the court filing fee) to file the certificate. Once you file the certificate you will receive a discharge of your debts and the case will be closed again.

2. You did not Pay the Filing Fee Installment as Required by Court Order

Some people choose to pay the court’s filing fee in installments due to financial issues. The court issues an order with deadlines to make each filing fee installment payment. If you miss one installment even by one day the court may dismiss your case for not following their order. If this is the case you need to file a motion to reopen the bankruptcy case (and pay the court filing fee to reopen) to pay the remainder of the filing fee. Note there are two fees discussed here: the court filing fee to file your bankruptcy case and the court filing fee to reopen your case.

3. You did not Pay the Chapter 13 Plan Payment as Required

If you filed a Chapter 13 Bankruptcy you must make each and every monthly payment to the Chapter 13 Trustee to obtain the relief you seek. If you do not abide by the terms of the approved Chapter 13 plan, and miss a payment the trustee, the trustee will file a motion to dismiss your case with the court. If you are unable to pay the entire amount of arrears you can consult with your bankruptcy lawyer to see what alternatives are available to you. If your case is dismissed you may choose to reopen your bankruptcy case to pay the missed payments and continue on with your Chapter 13 Plan.

4. You Want to File a Motion to Avoid a Judgment Lien

You can file a motion to avoid a judgment lien from your personal or real property in a Chapter 7 or Chapter 13 bankruptcy case if the lien impairs your exemptions. Many people who file Chapter 7 bankruptcy cases pro se or with a bankruptcy petition preparer (meaning they did not have a bankruptcy attorney and they represent themselves in the case) do not know the law, that judgment liens can be avoided or know how to file a motion to avoid a judgment lien. This is one of the many reasons you should always consult with bankruptcy lawyers before filing bankruptcy. Even if your case is closed and your debts are discharged you may file a motion to reopen your bankruptcy case to file the motion to avoid a judgment lien that impairs your exemptions.

5. You Want to Add Creditors to Your Bankruptcy Case

If you forgot to list a creditor in your bankruptcy case, your debts have already been discharged and your case closed, you can reopen your bankruptcy case to include your forgotten creditors depending on the jurisdiction in which you live. In the 9th Circuit if you have a no-asset Chapter 7 bankruptcy case (meaning all your assets are exempt and therefore no assets were administered by the Chapter 7 Trustee) this is not necessary given the creditors would not have received anything even if they were notified of your bankruptcy filing.

The above list is not an exhaustive list of why a motion to reopen a bankruptcy case may be filed. There are numerous other reasons why other parties like the trustee assigned to the case might want to reopen a bankruptcy case. The closure of your bankruptcy case does not necessarily mean your case is over.

Are my Assets in my Revocable Living Trust Part of my Bankruptcy Estate?

By Ryan C. Wood

In general, all of the assets that you own are supposed to be disclosed as part of your bankruptcy estate when you file for bankruptcy (with certain exceptions of course). Are assets you transferred into a revocable living trust part of your bankruptcy estate as well? The answer is yes, they are part of the bankruptcy estate even though the trust is a separate legal entity.

A revocable living trust is normally used as a probate avoiding tool. All the assets included in the trust do not have to go through probate court. This may save significant time and money for the beneficiaries: they get their inheritance faster and they have more of the inheritance left over for them. Upon the passing of the settlor or grantor (person who transferred the asset into the trust to create the trust) the assets in the trust are distributed based upon the wishes of the settlor or grantor.

Although the revocable living trust is a great probate-avoiding tool it is not a great bankruptcy planning tool. That’s because a revocable living trust is revocable. The trust can be modified or revoked at any time. If the owner of the trust assets decides he or she no longer wants the asset to be in a trust, the owner can take the asset out of the trust. If the owner wants to sell the house he or she has the power to do so because it is still their property. It is this freedom that makes the trust a poor bankruptcy planning tool. The bankruptcy trustee steps into your shoes when you file for bankruptcy. Everything you have access to, the trustee and your creditors do as well. That means that the trustee may have the power to sell your house if it is not properly exempted. If you have assets in a revocable living trust you should consult with bankruptcy attorneys to determine if the assets can be protected or not before filing bankruptcy. It may be counter productive if you file for bankruptcy and end up losing your house or other significant assets you may have.

An example of the above situation is if you transferred your house worth $500,000 into a revocable living trust. You name yourself the trustee for the trust during your lifetime. The house has a $250,000 mortgage in your name that still needs to be paid off. If you file a Chapter 7 bankruptcy case without the advice of a lawyer it may be detrimental to your case. Some people may think that an asset in a revocable living trust does not need to be included in the bankruptcy estate because the trust is a separate legal entity. You may end up potentially losing your home if you do not have adequate legal counsel to guide you. That is because there is no bankruptcy exemption with a limit high enough to protect $250,000 in equity in your home (depending on the jurisdiction in which you live, a couple of states have unlimited homestead exemptions). Once you have filed a Chapter 7 case you cannot voluntarily dismiss it at any time either once you find out that it is detrimental to your finances. You will have to stick it out and abide by the orders of the court. This is why it is essential to consult with bankruptcy lawyers when you have any assets that may need protecting. There may be some types of irrevocable trusts that may be excluded from the bankruptcy estate. They may be excluded because you do not have access or control over the trust and therefore the bankruptcy trustee may not have access or control over these trusts. It is highly recommended that you seek the advice of competent legal counsel to advise you on such matters.

Can the Extra $200 IRS Deduction for Having A High Mileage Car or Old Car Still be Used? The Ninth Circuit BAP In Luedtke Say No

By Ryan C. Wood

If you have an old car chances are you are paying more in operational expenses for the old car than a newer one would cost. Most people would agree they have to pay more for repairs such as changing worn out brakes, needing new tires, may be needing a new transmission, timing belt, car engine and other maintenance and service needs for their old car. The bottom line is you need to put more money into your car for the wear and tear. For years bankruptcy attorneys have added an extra $200 pursuant to the IRS standards for old vehicles due to additional maintenance costs. The Ninth Circuit Bankruptcy Appellate Panel in Drummond v. Luedtke (In re Luedtke), BAP No. MT-13-1313, 9th Cir. BAP (Apr. 9, 2014), the 9th Circuit said this extra expense can no longer be used in Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income (Official Form 22C).

Different jurisdictions have different rulings when it comes to this issue. Some jurisdictions allow an additional $200 deduction for an “older vehicle operating expense” in the Official Form 22C because they acknowledge the fact that older cars do cost more to maintain. Some jurisdictions do not. Unfortunately for debtors, last week the Ninth Circuit Bankruptcy Appellate Panel moved the Ninth Circuit to the “not allowed” side.

Mr. & Mrs. Luedtke filed a Chapter 13 bankruptcy case in Montana. They had two cars and claimed an additional $200 deduction for an “older vehicle operating expense” on their Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income because one of their cars was a 1993 Ford Taurus with 118,000 miles. The trustee objected to the Chapter 13 plan the Luedtkes proposed because the trustee indicated that the additional $200 expense deduction could have been paid into the plan to benefit general unsecured creditors. The bankruptcy court overruled the trustee’s objection and the trustee appealed to the Bankruptcy Appellate Panel for the Ninth Circuit.

According to 11 U.S.C. §1325(b)(1), all of the debtors’ projected disposable income (this figure is derived from the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income, Line 59) needs to be paid to general unsecured creditors. What is this statement determining how much unsecured creditors should receive in the plan? The statement of disposable income takes into account your income averaged over the last six months and compares this average income with the median income for the number of people in your household in the county you live. If you are below the median income in your county then the commitment period can be 36 months. If you are above the median (meaning your income is higher than the median income for your county based on the number of people in your household) the minimum commitment period for the plan has to be 60 months and the statement of disposable income is filled out further. Most of the expenses or deductions from your income are based on IRS National Standards and Local Standards, not your own personal monthly expenses. If your personal expenses are higher than the IRS National Standards and Local Standards you still only receive the deductions calculated by the IRS and not what you actually spend. If you are spending more than the IRS standards, in theory it means you are spending above what you can afford. After all allowable expenses are deducted from your income you end up with the “projected disposable income” figure. This is the minimum amount the general unsecured creditors must receive in the Chapter 13 plan. If you need more help understanding this process you should speak with bankruptcy lawyers in your jurisdiction.

The Bankruptcy Appellate Panel in Luedtke case held that the additional $200 deduction for the older vehicle expense is not listed in the IRS’s Financial Analysis Handbook. The only place that references the extra $200 deduction is under a chapter that only dealt with compromise proposals from taxpayers that are late in paying their taxes. That chapter has to incorporate the chapter in the IRS manual that provides for the National Standards and Local Standards but it is not reciprocal, meaning the National Standards and Local Standards do not incorporate the $200 older vehicle expense. Therefore the court indicated the $200 additional deduction for an older vehicle expense is not allowed to be used in the Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income to reduce bankruptcy filer’s monthly disposable income.

Can I Treat My Unsecured Creditors Differently in My Chapter 13 Plan?

By Ryan C. Wood

When you file a Chapter 13 bankruptcy case it is expected that all your general unsecured creditors will be treated equally. You have to treat your secured creditors and priority unsecured creditors differently but your general unsecured creditors will all be paid the same percentage in your Chapter 13 plan, right? The answer is: it depends.

Pursuant to 11 U.S.C. §1322(b)(1), the Chapter 13 plan may designate different classes of unsecured claims so long as the plan does not unfairly discriminate against the different classes. 11 U.S. C. §1122(a) provides: Except as provided in subsection (b) of this section, a plany may place a claim or an interest in a particular class only if such claim or interest is substantially similar to t he other claims or interests of such class.  However, the Chapter 13 plan may treat a claim for a consumer debt differently than other unsecured creditors if there is another person who is also liable for the debt along with the person filing for bankruptcy. The interpretation of this statute varies amongst the different jurisdictions so it is best to consult with a bankruptcy attorney about how your jurisdiction treats this statute.

In the case of In re: Renteria, 470 B.R. 838 (9th Cir. BAP 2012), Ms. Renteria filed for Chapter 13 bankruptcy. In her Chapter 13 plan she proposed to pay her former attorney (whom she owed about $20,000) 100% of the this claim or debt plus 10% interest because her mother personally guaranteed the debt for Ms. Renteria. Her former attorney filed suit against both Ms. Renteria and her mother in state court to recover the funds owed to him and there was currently a default judgment entered against her mother prior to the filing of Ms. Renteria’s bankruptcy case. The Trustee objected to the Chapter 13 plan because he contended the plan unfairly discriminated against the other unsecured creditors since the unsecured creditors will receive 0% repayment in the Chapter 13 plan while the former attorney will receive 100% plus 10% interest despite Section 1322(b)(1) providing the different treatment of co-signed debts.  Ms. Renteria filed a declaration to provide more information about the circumstances of the treatment of her former attorney’s debt. She retained her former attorney to help her with a domestic violence and paternity lawsuit. She would not have been able to retain the services of her former attorney without her mother personally guaranteeing the attorney fees and expenses. Ms. Renteria also indicated that since she had no non-exempt assets her other unsecured creditors would not have been in a worse position if she filed a Chapter 7 bankruptcy case. The bankruptcy court overruled the Trustee’s objections and confirmed the case and the Trustee appealed.  The Ninth Circuit Bankruptcy Appellate Panel affirmed the lower court’s overrule of the objection to confirmation and confirmed/approved the chapter 13 plan.

Courts are split on the interpretation of the “however” clause in §1322(b)(1). A majority of the courts hold that debts that are co-signed (or co-obligated) by another person still need to clear the unfair discrimination hurdle. A minority of the courts believe that the “however” clause is plain and unambiguous and indicates that co-signor or (co-obligors) claims are exempted from the unfair discrimination rule. The Renteria court examined the construction and placement of the “however” clause. The one thing the courts have concluded is that different courts will disagree on the meaning of the “however” clause.  Basic statutory interpretation though requires the word however not be ignored and arguably holding that co-signed debts or claims cannot be treated differently would make the however clause meaningless.  The wrong approach to statutory interpretation.  The Renteria court then looked at legislative history. The Renteria court examined the cases listed in the legislative history (In re Utter, 3 B.R. 369 (Bk.W.D.N.Y. 1980) and In re Montano, 4 B.R. 535 (Bk.D.D.C. 1980)), and found that Congress was trying to address these two cases in the §1322 statute. In the Utter case, Utter separated out one claim to pay 100% and all other unsecured claims received little to nothing. The 100% claim was due to the fact that Utter’s sister was obligated to the same debt. The court in Utter denied confirmation because the preferential treatment discriminates unfairly against the other unsecured creditors that do not have co-signed debts. In the Montano case, the claims guaranteed by co-signors received 100% payment and all other unsecured creditors received 1% payment. The court listed the same reasoning as the Utter court: that the other general unsecured claims were being unfairly discriminated against.

The Renteria court concluded that Congress wants to permit a person filing a Chapter 13 case to separately classify the debts where a third party is co-obligated to the debt and to prefer the co-obligated debt when facts are similar to In re Utter and In re Montano.  This case and many others leave open the rest of Section 1322(b)(1) and when other types of general unsecured debts can be separately classified and treated differently.  There is no clear rule or analysis to draw from about what is unfair discrimination.  Discrimination is clearly allowed but when does it become unfair is the question to be answered.  So far it seems like the unfair part of the discrimination analysis has been rendered meaningless.  Most courts deny confirmation of plans any time there is any type of different treatment and have a blanket rule that all discrimination is unfair.  This cannot be of course.  There has to be some form of discrimination between general unsecured claims that is allowed and held to not unfair discrimination. 

If you are thinking of filing a Chapter 13 bankruptcy case that has co-signed debt it is best to consult with Chapter 13 bankruptcy attorneys to help you through the process.

If There Is A Lien On Your Property There May Be A Way To Remove The Lien When Filing Bankruptcy

By Ryan C. Wood

If there is a lien on your property there may be a way for you to avoid (remove) the lien when you file for bankruptcy protection. It has to meet certain criteria of course. Only certain liens can be avoided: 1) judicial liens (except for judicial liens that secure domestic support obligations) and 2) non-possessory, non-purchase-money security interest liens. See 11 U.S.C. §522(f)(1).

What is a judicial lien? After a creditor sues you for money owed, you can get a judgment filed against you in several ways: you lose the court case because you really do owe the money or you did not defend the lawsuit (or chose to ignore it) and the creditor wins by default and obtains a default judgment against you. The creditor can then place a judgment lien on your property by recording an abstract of judgment with the county recorder’s office of your county. If there is a lien placed on your property due to a judgment, that lien could be avoided.

What about the non-possessory, non-purchase-money security interest lien? Those are basically any non-consensual liens. If you are not sure about what type of lien was recorded against your property consult a local bankruptcy lawyer in your area. Liens you did not voluntarily place on your property. Examples of a possessory or purchase-money security lien are things like your mortgage and car loans: you voluntarily use your house or your car as collateral to obtain a loan.

Now that you know what types of liens can be avoided on your property your next step is to determine if your bankruptcy attorney can help you avoid the lien. Remember, if there is a lien on your property there may be a way to remove the lien by filing bankruptcy. When filing for bankruptcy protection the lien can be avoided if it impairs an exemption that you are entitled to. 11 U.S.C. §522(f). How do you determine if the lien impairs an exemption? According to 11 U.S.C. §522(f)(2)(A), the lien will impair an exemption to the extent that the sum of the lien, all other liens on the property and the amount of the exemption that you could claim if there were no liens on your property exceed the value of your interest in the property in the absence of any liens.

So what does that even mean? §522(f)(2)(A) is essentially saying that if you add up all your liens plus your exemptions and if it exceeds the fair market value of your property then it impairs an exemption. The best way to explain is to provide you with an example. Let’s say you have a house that is worth $400,000. You have a mortgage on the property for $380,000. You have a $25,000 exemption available for your house. You have a judgment lien on your house for $10,000. Can you avoid this $10,000 lien? Let’s work out the math. If we add up all the liens on the house plus exemptions, we get $415,000 ($380,000 + $10,000 + $25,000). Since the house is worth $400,000, and the mortgage of $380,000 (non-avoidable lien) plus the exemption of $25,000 = $405,000, the entire $10,000 lien would impair your exemptions. In another scenario, if you only have a $370,000 mortgage on your property plus the $25,000 exemption, it totals $395,000. If your house is worth $400,000, then the $10,000 lien would impair an exemption only up to $5,000. This means that you can avoid lien up to $5,000. Depending upon the circumstances, if there is a lien on your property there may be a way to remove the lien when filing bankruptcy.