Kentucky Bankruptcy Law

Counsel with Care

Hidden Debt Collection Mechanism

Despite the fact that notices of judgment liens are sent to the Debtor, such notices are often ignored, misunderstood, or forgotten by the time the Debtor files bankruptcy. So, it is important for the Debtor to go down to the County Clerk and get a copy of ALL active liens against real estate. Since nothing bad immediate happens with a judgment lien against property, people tend to overlook them, so they are a hidden debt collection method that could survive bankruptcy.

In a Chapter 7 or a Chapter 13, one can avoid a judicial lien on property that impairs an exemption pursuant to 11 USC Sect. 522(f).  The most common way this plays out is that a creditor has filed suit, obtained a judgment, and then filed a lien on that judgment against your real property. This lien can sit dormant against your home for fifteen years, but it must be satisfied if the property is ever sold. Or, the creditor may pursue foreclosure but they rarely do that unless they believe there is enough equity in the property.

In order to strip off the judgment lien, your bankruptcy attorney must file a motion within the bankruptcy as a contested matter. In other words, if your attorney does nothing else, then the lien will survive the discharge. Previously, this was done within the plan of a Chapter 13, but the local rules have changed so that it must be done by motion in both Chapter 7 and Chapter 13 bankruptcies.

If your attorney was unaware or the judgment lien or otherwise failed to file that motion to strip the lien, not all is lost. A decision in the Eastern District of Kentucky Bankruptcy CourtIn re Cross, Case No. 93-50547, the Debtors failed to strip the lien off their real property while the bankruptcy remained open. Twenty months after the case closed, the Cross’ reopened the bankruptcy and moved to have the lien stripped. Despite the passage of time and the creditor arguing that the Debtors waived the right to strip the lien based on so much time passing, the court still granted their motion.

October 15, 2014 Posted by | Assets, Bankruptcy, Chapter 7, Discharge, Exemptions, Property (exempt, Security interests | , , , , , , , | 1 Comment

Violation of the Discharge Order: What you get

I post last Friday about how to pursue a violation of the discharge order from a bankruptcy. Once contempt has been proven to the court, the question turns to sanctions. This normally involves an award of monetary damages to the Debtor to be paid by the creditor. While it seems that this part is the simple, no-brainer part, it is actually where the most care should be taken.

We need to go back to prior to re-opening the bankruptcy case to be sure to cover this topic adequately. The court is going to look to see if the Debtors’ attorney went straight to litigation as opposed to attempting to mitigate damages. My practice on this may go overboard on mitigation, but I believe the principal is sound. I always provide my clients with a copy of the discharge order and instruct them: 1) if a creditor violates the order, send them a letter and attach a copy of the order making sure to keep a copy of the letter sent, and 2) if the creditor persists, they should contact me. Once they contact me, I will again communicate the order to the creditor with a “cease and desist” letter.

If the violation involved something more than directly contacting the Debtor, though, I may alter step two. For example, if the creditor has contacted neighbors or co-workers of the Debtor to attempt to collect the debt, then the cease and desist letter would also demand monetary compensation for the Debtor. If the creditor persists, then litigation is warranted.

Now, one reason to take the approach I outlined is that the scope of damages ranges from only actual damages all the way to punitive damages. If the violation is one where a mistake was made by the creditor and then timely rectified, the court is unlikely to award punitive damages. Furthermore, if they see no signs of mitigation attempts, the court may not even award all of the attorney fees. However, if the violation is egregious then the court may impose far larger monetary awards to the Debtor. So, my approach prevents needlessly mounting attorney fees while still getting the Debtors relief.

November 19, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Discharge, Violation | , , , , , , , , , , , , | Leave a comment

Post Holiday Pitfalls in Bankruptcy part 1

Certain provisions of the bankruptcy code bear special scrutiny when someone is filing bankruptcy in the weeks following the Christmas holiday season. This is because people tend to rack up higher debt during this season and tend to purchase higher priced items. Even folks struggling with a debt load find it hard to resist the lure of commercialism. They hope to still give great gifts to their children, family and friends.

The first provision to be aware of in a post-Christmas bankruptcy filing is 11 USC Sect. 522(f)(B). Ordinarily, 522(f) is the code section that allows one to strip off (turn from secured to unsecured) a debt that has household goods as collateral. However, 522(f)(B) clearly applies only to debts that were NOT purchase money security debts.  The reason this matters just after Christmas is that many large price purchases come with a purchase money security interest (PMSI) forcing you to either pay the debt or cough up the goods purchased. This can be embarrassing when you purchased a nice, large screen TV for your retired dad so he can watch the Price is Right in high-definition.

So, how do you know if a PMSI attached to you gift purchase? The only way to know for sure is if you still have the receipt and any other paperwork you signed when you bought the item. Ordinarily, regular credit cards do not involve PMSIs on their purchases, but in-store credit or store specific cards often do attach PMSIs to goods.  Your only clue that you are actually giving the creditor a security interest in the item you are buying may be when you have to sign two different places instead of just one. At some stores, the security agreement prints out on receipt paper just like the ordinary receipt which you sign whenever you make a credit purchase. Or, nowadays, you may be asked to sign an electronic signature device twice to complete the transaction.

PMSI debts do get discharged in a Chapter 7 or Chapter 13 as to your personal obligation to repay, but the security interest remains attached. So, even after the bankruptcy is over and done and you think all is well, the creditor can still show up and demand the property be surrendered to them. They cannot demand you repay them, but they do have a right to the stuff.

January 2, 2012 Posted by | Bankruptcy, Chapter 13, Chapter 7, Debt collection, Discharge, Exemptions, PMSI (purchase money), Property (exempt, Security interests | , , , , , , , , | Leave a comment