Bankruptcy Court's Ability to Determine Tax Liability.

While it has not often been utilized, bankruptcy courts have been given limited jurisdiction under Section 505 of the bankruptcy code to determine the amount or legality of any tax, with certain limitations. This includes the ability of the bankruptcy court to reduce property tax assessments for prior years. Nevertheless, this jurisdiction has been strictly limited by the BAPCPA amendments which require that the challenge be made “timely.” 11 U.S.C. § 505(a)(2). The majority of bankruptcy decisions have concluded that Bankruptcy Code § 108(a) can provide no relief in extending that time limit for bankruptcy cases. 5-11-bk-05550-JJT_Airport__5-11-ap-00244-JJT_Ray

In Re Michael: funds acquired by the debtor for eventual disbursement to creditors by the Chapter 13 Trustee must be returned to debtor at the time of conversion

On October 26, 2012 the 3rd Circuit held in the case of In Re Michael, No. 11- 1992, that when a debtor converts their case from Chapter 13 (Adjustment of debts) to a Chapter 7 (Liquidation of Assets), funds acquired by the debtor for eventual disbursement to creditors by the Chapter 13 Trustee must be returned to debtor at the time of conversion. In other words, if the Chapter 13 Trustee is holding funds contributed by the debtor, those funds must be returned to the debtor upon conversion of the case to Chapter 7, instead of being disbursed to creditors. In Re Michael (3rd Circuit)

Erie v Dombroski: Choice of Law Standards Discussed

Judge Opel in a recent opinion discusses choice of law issues for bankruptcy cases involving an issue where there is a conflict between state laws.

The Court must undertake a choice-of-law analysis to decide which law will determine whether the alleged choice-of-law provision is enforceable.  To answer a choice-of-law issue, federal courts are required to apply the choice-of-law rules of the “state in which it sits. Pennsylvania’s standard for choice-of-law questions is a hybrid of two tests: the “most significant relationship” approach of the Restatement (Second) of Conflicts of Law and the governmental interest approach.  The Pennsylvania approach is a two-step analysis. First, the court must determine whether there is a true conflict of laws or merely the existence of a “false conflict.”  If a true conflict exists, the reviewing court then determines which state has the greatest interest in the application of its law through use of then “most significant relationship” test of the Restatement (Second) of Conflict of Law.  To resolve whether a true conflict exists, courts compare the competing state laws and the governmental interests they represent.

 

12-AP-156 Erie v Dombroski Summary Judgment Opinion

Another "Mortgage Relief Company" shut down for alleged violations of State Consumer Protection Laws

Another "Mortgage Relief Company" has been shut down for violating several State Consumer Protection Laws.  On Monday, September 24th, 2012, the United States District Court for the Southern District of Florida entered a Temporary Restraining Order  which prohibits Prime Legal Plans LLC, together with its related entities, and the individuals who control and/or work for Prime Legal Plans LLC from contacting homeowners and seeking to or collecting any monies from consumers for mortgage assistance relief related services.  Based upon information provided by the Court Appointed Receiver, the Prime Entities offered to help people resolve mortgage foreclosure issues and charged consumers anywhere from $595 to $750 per month for their "services." Based in Florida, the company apparently solicited clients from around the country making unrealistic promises to save their homes from foreclosure.  Unfortunately, the company took the money but did nothing to help their clients.  Here is the link the the Receiver's website:  www.primelegalreceivership.com.

This is one of many "Mortgage Relief Companies" which are currently operating in the present economic environment.  They prey on people who are afraid of losing their home and make promises they can't possibly hope to fulfill.  Many of my clients have received solicitations from this company and similar organizations.  Because I was concerned about the reputation of these companies and the promises being made, I wrote a newsletter article concerning the Federal Trade Commission's adoption of the Mortgage Assistant Relief Services Rule (MARS).  The rule was adopted to protect distressed homeowners from mortgage relief service providers that claim, that for a fee, they will negotiate with consumer’s mortgage lender or service to obtain a loan modification, a short sale or other relief for the home owner, or foreclosure.  The changes are a result of a flood of complaints by consumers that many of these companies are bogus or have made false or misleading claims and representations.

Under MARS Rule, mortgage relief companies may not collect any fee until they have provided consumers with a written offer from their lender or service that the consumer deems acceptable. The written offer must describe the key changes to the mortgage that would result if the consumer accepts the offer. Mortgage relief companies also must remind consumers of their right to reject the offer without any charge. Under the new rules several disclosures are necessary, including:

• Mortgage relief companies must not state that they are associated with the government, and their services have not been approved by the government or the consumers’ lender.

• That the lender may not agree to change the consumer’s loan.

• If the mortgage relief companies tell consumers to stop paying their mortgage, they must tell them that they could lose their home and damage their credit rating.

• Mortgage relief companies also must explain in their communication and to consumers that the consumers may stop doing business with the mortgage relief company at any time.

Homeowners who are struggling with their mortgage should also be aware of how a  Chapter 13 Bankruptcy might save the family home from foreclosure. Unlike promises made by mortgage relief companies such as Prime, the Bankruptcy Code provides a safe, predictable and cost effective method of saving the family home.  One of the more well known uses of a Chapter 13 is that the homeowners can stop foreclosure and pay back all of the mortgage arrears over a period of 3-5 years. Another option that may be available to some consumers is the possibility of “stripping off” totally unsecured second and third mortgages. For instance, if a home is presently worth $100,000.00, is subject to a first mortgage in the amount of $105,000.00, in addition to a home equity line-of-credit (HELOC) of $20,000.00, the home owner could propose a Plan inside Chapter 13 to “strip off” the HELOC and have it treated as a totally dischargeable debt in bankruptcy.

Board Certified in Consumer Bankruptcy

York, PA (October 2012) – Attorney Brent C. Diefenderfer of the CGA Law Firm has become certified by the American Board of Certification as a Consumer Bankruptcy Specialist. He has successfully completed the requirements for national certification and is the second attorney in the County of York, Pennsylvania to hold this designation.

 To become certified, Mr. Diefenderfer satisfied the following requirements:

• Passed an extensive day-long written examination covering a wide range of consumer bankruptcy issues;

• Full time practice of law for at least five years;

• Good standing in the bars of all states in which where a license to practice law is held;

• Devoted at least 30% of practice time and at least 400 hours to bankruptcy related matters in the last three years; • Documented involvement in a substantial number of consumer bankruptcy matters;

• Demonstrated commitment to continuing legal education by earning at least 60 hours of bankruptcy education in the past three years.

Attorney Diefenderfer represents individuals and businesses in debt restructuring and bankruptcy and advises his clients on strategies that are appropriate to their unique situation. These strategies may include bankruptcy under Chapters 7, 11 and 13, creditor negotiation, mortgage loan modification or real estate short sale. Brent also provides legal counsel on estate planning, asset protection, residential real estate transactions and civil litigation. He advises businesses on entity formation, commercial leases, purchase agreements and asset acquisitions. Drawing from his military experience, Attorney Diefenderfer represents former service members in upgrading unfavorable characterizations of service before all Service Boards of Review.

Prior to joining CGA Law Firm, Attorney Diefenderfer served as an active-duty Army Officer and Judge Advocate (JAG) Attorney and deployed to Iraq for one year with the 101st Airborne Division “Screaming Eagles.” The American Board of Certification (ABC) is a non-profit organization dedicated to serving the public and improving the quality of the bankruptcy bar. The rigorous ABC certification standards are designed to encourage bankruptcy practitioners to strive toward excellence and to recognize those attorneys who are experts in the bankruptcy field. The ABC certification program is accredited by the American Bar Association.

Mortgage Foreclosure "Dual Tracking" with Loan Modifications Now Restricted Under Settlement Agreement with Nation's Five Largest Banks

Earlier this year, 5 of the nation's biggest banks (GMAC, Bank of America, Citi, Chase and Wells Fargo) entered into a settlement with the Dept. of Justice over the allegations of "Robo-signing" of foreclosure complaints.   The settlement contains new servicing standards and protections for home owners.

The terms of that settlement agreement go into effect today and restrict when Banks can refer a case for foreclosure.  Borrowers must be thoroughly evaluated for all available loss mitigation options before foreclosure referral, and banks must act on loss mitigation applications before referring loans to foreclosure; i.e. “dual tracking” will be restricted. Denials of loss mitigation relief must be automatically reviewed, with a right to appeal for borrowers.

An executive summary of the settlement terms can be found here:

https://d9klfgibkcquc.cloudfront.net/NMS_Executive_Summary-7-23-2012.pdf

                                

Judge Thomas held that Rule 9006(a) is applicable to § 109(h), and the period will be calculated backwards from the date of the petition. In this case, the application of the extension periods provided by Rule 9006(a) do not apply because the applicable ending point fell on a business day and, therefore, no extension is warranted under the instant facts. 5-08-bk-52505-JJT_John

York County Tax Upset Sale

Are you behind on your real estate taxes? Every September, the York County Tax Assessment Office conducts a “Tax Upset Sale.” For those property owners who do not pay their real estate taxes in a timely fashion, the County may sell the real estate on which the taxes are owed for an amount equal to the delinquent taxes. If the real estate taxes are not paid for the year two years prior to the sale date, the property will be sold at the tax sale, subject to any mortgages or other liens and encumbrances. This year, the real estate tax sale is September 20, 2012 in York County. In order to remove a property from the tax sale list, it is necessary to pay in full the amount of the 2010 taxes, plus any applicable interest and penalties for that tax year. For property owners that are delinquent and have properties on the tax sale list, there are a few options. First, the easiest way is to pay the applicable tax and penalties and interest. In the event that a property owner does not have the cash to make a lump sum payment on account of the taxes due for the sale date, a Chapter 13 Bankruptcy may be an appropriate mechanism to pay back the real estate taxes over time. When a property owner files bankruptcy, the Automatic Stay imposed by the Bankruptcy Code automatically stops the Tax Upset Sale or Sheriff Sale, as well as any other collection activity against the property owner. After the bankruptcy is filed, the property owner must promptly resume making monthly payments and propose a plan with the Court to pay back the delinquent real estate taxes in full over the course of 3 to 5 years. If the property owner is also behind on payments to the mortgage company or other taxes, these arrears also must be included in the Chapter 13 Plan. No Sheriff Sale may be conducted while a property owner is in a Chapter 13 Bankruptcy, and so long as the monthly payments continue to the mortgage lender. Property owners should take action early to develop a strategy and consult a qualified legal counsel to understand all options that are available to them to save their property. This is especially the case for property owners who own real estate worth more than the mortgage owed on the property. Savvy real estate investors may decide to purchase the property at the Tax Upset Sale by simply paying the taxes on the property and taking the property subject to the mortgage. Generally speaking, once a property is sold at the tax upset sale, there is no right of redemption for the property owner to get the property back. However, the Tax Claim Bureau must closely follow the law to insure that property owners are given notice of the sale.

In the context of 12(b)(6) motion to dismiss, Judge Thomas noted that the rescheduling of the sale is not a violation of the automatic stay because the action simply maintains the “status quo” between the debtor and the creditor. In re Purvis (Continuing Sheriff Sale Does Not Violate Stay)(J. Thomas)

Preferential Transfers: A Focus on the 3rd Circuit

Below are materials which I prepared for a presentation I prepared at the annual conference for the 2012 Middle District Bankruptcy Bar Association. This article examines the current status of preferential payment jurisprudence in the Third Circuit (Delaware, Pennsylvania, New Jersey). In general, the preference provision of § 547 permits the trustee to avoid a transfer to a creditor who has received a payment on the eve of the debtor’s bankruptcy. The trustee has the power to reach back and recovery certain payments and transfers of the debtor’s property. This provision aims to ensure that creditors are treated equitably, both by deterring a failing debtor from giving preferential treatment to its most demanding creditors “in an effort to stave off a hard ride into bankruptcy”, and by discouraging creditors from racing to dismantle the debtor. Preferential Transfers: A Focus on the 3rd Circuit

New Judge Opel opinion regarding proofs of claim filed by secured creditors. One of the permissive provisions of Section 1322 is that a chapter 13 plan may modify the rights of secured claims when the collateral is not solely the debtor's principle residence. However, if the secured claim is modified in the plan, section 1322 requires that the claim be paid in full through the plan. Hinkle Confirmation Opinion (J. Opel)

Legal Lines: Basics of Bankruptcy