Kentucky Bankruptcy Law

Counsel with Care

Plan Payments by Payroll Deduction

This blog post about monthly plan payments is a crucial one. Many of the persons that I assist in a Chapter 13 do NOT want their employer to know they filed bankruptcy. However, I have never seen an employer have a problem with it and the payroll deduction is the best way to prevent problems with the plan later down the road.

Chapter 13 Trustee, EDKY: Trustee's Blog

Plan payments in the EDKY must be made by payroll deduction unless otherwise ordered by the court or agreed to by the trustee.  Many debtors’ attorneys are inadvertently causing their clients to get behind in plan payments because the attorneys and their staff don’t know the rules.  Download this detailed Attorney Info Sheet on Mandatory PDO’s 08252017, and keep reading for important reminders for debtors’ attorneys and their staff regarding payroll deduction orders and plan payments.

If the debtor’s income is from employment, the debtor’s attorney must submit a completed payroll deduction order (“PDO”) at the same time the plan is filed.  Tender the payroll deduction order to the court promptly.  Expect that it will take 4 to 6 weeks for the employer to get the payroll deduction set up, and advise your clients accordingly.

A debtor’s first full monthly plan payment is due 30 days after the…

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September 6, 2017 Posted by | Uncategorized | Leave a comment

Claims Based on Time-Barred Debts in Kentucky

As always – solid information.

Chapter 13 Trustee, EDKY: Trustee's Blog

In Midland Funding, LLC v. Johnson, 137 S.Ct. 1407 (May 15, 2017), the U.S. Supreme Court held that Midland Funding did not violate the Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim in the debtor’s chapter 13 case for a credit card debt on which the statute of limitations “obviously” had expired.  If the claim is unenforceable because it is time-barred, the remedy is to object to the claim.  What do practitioners in Kentucky need to know about statutes of limitations on credit card debts before filing or objecting to claims?

Which state’s statute of limitations applies?  The procedural law of the forum state will determine which state’s statute of limitations applies.  In the Midland Funding case, the Supreme Court and all the lower courts applied, without discussion, the forum state’s statute of limitations (Alabama).

However, the choice of law is not as easy…

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September 6, 2017 Posted by | Uncategorized | Leave a comment

RECENT CHANGES IN KENTUCKY LAW AFFECTING PREJUDGMENT AND POSTJUDGMENT INTEREST (revised)

Excellent post – a must read for bankruptcy and creditor attorneys.

Chapter 13 Trustee, EDKY: Trustee's Blog

Bankruptcy practitioners need to know about recent changes in Kentucky law affecting:  (1) a creditor’s right to prejudgment interest; and (2) the statutory rate of postjudgment interest.

Prejudgment Interest:  Common scenario:  Debt buyer buys charged-off credit card accounts for pennies on the dollar, then sues the consumer to try to collect.  The lawsuit asks for prejudgment interest at 8% per KRS 360.010.

According to a February 2017 opinion of the Kentucky Supreme Court, the creditor is not entitled to prejudgment interest after the debt has been charged off.

Under Kentucky law, when the credit card account was first opened, the original creditor got to choose between interest at 8% per the statute and interest at a different rate set out in a contract.  By choosing a higher contract rate (like 27% on a credit card account), the creditor extinguished its right to ask for the 8% statutory interest rate. …

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July 27, 2017 Posted by | Uncategorized | 1 Comment

Saving Your House: Mortgage Business Loans

I speak with many small business owners who have weathered tough financial struggles in their businesses and need some sort of relief. Inevitably, at least one business loan has insisted on a second mortgage against their house. This becomes problematic if the business person is forced into bankruptcy as a last resort and also wants to keep his or her residence. There are two possible sources of relief, only one of which do I address in this post and I am not going to touch on a Chapter 11 at all because that is nearly always to expensive for a small business.

11 USC Section 1322 provides for what one can and cannot do in a Chapter 13 plan. Section 1322(b)(2) basically says that you cannot modify a debt secured against one’s personal residence. However, that debt can ONLY be secured against one’s home to have this protection. In most cases, a business loans secured against the debtor’s personal residence is also secured against some other property, such as a building owned by the business or the assets and inventory of the business. These loans can be modified.

So, a business owner who wants to save their house can go into a Chapter 13 and “cram down” the principal of that business loan to the value of available equity in that home. The rest of the loan becomes unsecured and subject to discharge at the completion of the Chapter 13. If there is no equity, then the loan becomes wholly unsecured.

My usual caveat here: each particular debtors circumstance can impact whether or not the approach I am referencing would work. One should consult with a knowledgeable bankrutpcy attorney to determine whether all the details line up becuase navigating the bankruptcy code can be rather complex.

June 29, 2017 Posted by | Bankruptcy, Business & small business, Chapter 13, Foreclosure, Plan, Planning, Pre-filing planning, Security interests, Uncategorized | , , , , , , , , , | 1 Comment

Changes to Federal and Local Bankruptcy Rules and Forms

This is a must read for bnakruptcy attorneys.

Chapter 13 Trustee, EDKY: Trustee's Blog

Significant changes in the Federal Rules of Bankruptcy Procedure become effective on December 1, 2017.  For example:

  • Secured creditors will be required to file claims by the bar date.
  • The bar date for most claims (secured and unsecured) will be 70 days after the petition date.
  • The plan will need to be served like a complaint in an adversary proceeding if the plan values collateral or avoids liens.
  • The chapter 13 plan will change.

Because of the forthcoming federal rule changes, the Bankruptcy Court for the Eastern District of Kentucky has published for comment its proposed new chapter 13 plan, other local forms, and changes to the KYEB Local Rules of Bankruptcy Procedure.  The deadline for submitting comments is July 15, 2017.

We will spend time over the next several months discussing the new rules, but for now,it is important for everyone to review the proposed local forms and…

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May 26, 2017 Posted by | Uncategorized | Leave a comment

My “best kept secret” practice

Most of my colleagues know that I find a tremendous overlap between practicing bankruptcy and practicing family law. One of the top reasons, if not the very top reason, for people filing bankruptcy is a divorce. However, I also have another practice area that fits well with both of these other practices and that is Family Law Mediation. I encourage you to please check out my other blog here at Bluegrass Conflict Resolution. Not only am I a trained mediator in this area, but my former career was focused on counseling and helping heal relationships. So, it is a natural extension that draws upon my skill set and experience.

May 23, 2017 Posted by | Alternate Debt Relief, Blogroll, child custody, Divorce, Family Law, Mediation, Uncategorized | , , , , , , , | 5 Comments

I’ll be teaching a session at Collection Law: Start to Finish

Just wanted my colleagues to know that I will be representing debtors’ attorneys at a NBI seminar entitled Collection Law: Start to Finish. I hope to give creditors’ attorneys some insight into what we look at in assessing a bankruptcy in the intake process.

May 22, 2017 Posted by | Uncategorized | 1 Comment

What your bank CAN and CANNOT do when you file bankruptcy

I make it a habit to advise clients to move their bank accounts prior to filing a Chapter 7 or Chapter 13 if they also owe a debt to their current institution. This is especially true if they bank with a credit unition. The reason is that there are some actions the bank or credit union can take that will make a debtor’s life difficult. These are legal restrictions of services and NOT a vioaltionof the automatic stay that a bankruptcy provides. The In re Spearman (W.D. Ky 2017) makes this very clear.

A bank or credit union likely will have a policy that allows them to stop providing certain services to customer if the customer files bankruptcy or otherwise negatively impacts the bank through their actions. The most common service that makes life difficult is the cessation of any electronic access to the debtor’s accounts. This means no online access to statements or to view their accounts. It also means no more use of a debit card at a store, restaurant, ATM, etc.

What a bank or credit union cannot do is deny access to the funds in your account. If there is money in a checking or savings account, they have to give it to you. They have to honor checks written on that account (so long as funds are available) and they have to let you show up in person and withdraw funds. They must tell you what is in your account if you come to a branch.

April 17, 2017 Posted by | Uncategorized | 1 Comment

Tax Time!

Are you dreading writing a significantly sized checks to the state and Federal governments soon? Or, perhaps you a excited about the refund you are getting and what you plan to do with it. Either way, here are a couple brief bullet points of things to be aware of if you are also facing a potential bankruptcy:

  • Avoid the temptation to NOT file your return. It really just delays the inevitable and there are some time limits that do not start to run until you have filed. If you may need to get a discharge on tax debt in a few years because it is mounting up, filing early and owing the IRS (or Kentucky) is better than waiting so that the debt actually can be discharged later on. If you use an accountant, though, be sure to check with them as well since there may be other considerations.
  • Paying a lump sum of over $600 from that refund to any one creditor within 90 days of filing a bankruptcy creates a “preferential payment” that the trustee can go after. So, it may be just throwing money away and making the bankruptcy drag out longer. If that lump sum will actually solve your financial woes, then go for it.

April 14, 2017 Posted by | Uncategorized | Leave a comment

Interest Rates on Secured Claims in Chapter 13 Cases in the EDKY

Tremendously valuable information.

Based on experience, not only is the interest on Federal past due taxes lower, but they are also easier to deal with.

Chapter 13 Trustee, EDKY: Trustee's Blog

The prime rate of interest increased a quarter of a point to 4% effective March 16, 2017.  Read on for information on how this affects chapter 13 plans in the EDKY, and what other interest rates are applicable to secured claims.

Prime rate:

Generally the interest rate on secured claims being paid through a chapter 13 plan is prime plus a risk factor of 1 to 3 points.  We often refer to this as the Till rate, named after the 2004 Supreme Court opinion which advanced the formulaic “prime plus” method of setting interest rates in chapter 13 cases.

The plan in the EDKY sets forth a “default” interest rate of the Wall Street Journal (WSJ) prime rate on the date of confirmation plus 2 percentage points.  Thus, for secured claims that are not specifically provided for in the plan, or for those secured claims that are provided for…

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April 7, 2017 Posted by | Uncategorized | Leave a comment