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Pocket Dialers Beware

A cellphone user who unknowingly places a call doesn’t have a reasonable expectation of privacy in conversations exposed to the person on the other end of the line, a federal appeals court said on Tuesday. In this case, a senior executive of a business inadvertently pocket dialed his administrative assistant who then over him speaking with a co-worker and his wife about personnel matters. The administrative assistant wrote down some of the conversation and prepares a typewritten summary of the call and have it, along with a recording of some of the call, to other senior executives. The cellphone user then sued under a federal law that bars the interception of communications and appealed a lower court decision tossing the suit. The appeals court affirmed the lower court, reasoning that a person who operates a device capable of exposing conversations to third parties has no reasonable expectation of privacy when he or she fails to take precautions that would prevent such exposure. Pocket dials can be prevented by locking the phone, setting up a passcode, or using an app that prevents pocket dials. According to the court, the cell phone user was “no different from the person who exposes in-home activities by leaving drapes open or a webcam on and therefore has not exhibited an expectation of privacy.” (BERTHA MAE HUFF; JAMES HAROLD HUFF, Plaintiffs-Appellants, v. CAROL SPAW). Read More
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Court of Appeals affirms bankruptcy court holding that student loans were not dischargeable

In Tetzlaff v. Educational Credit Management Corp., No. 14-3702 (July 22, 2015) , the Court of Appeals in Chicago held that the Wisconsin Bankruptcy Court did not err in denying a debtor’s request to discharge $260,000 in student loan debt in a chapter 7 proceeding. The debtor was 56 years old, unemployed and living with his mother and subsisting on her social security income. The debtor also had a law degree (but was unable to pass the bar after trying twice) and an MBA. Expert testimony from the psychologist hired by the lender as an expert indicated the debtor was not mentally ill, but instead was a malingerer and may have been feigning illness. The bankruptcy court also found the debtor’s talents, including his ability to earn advanced degrees and to write well, defeated his contention that his current inability to pay on student loans would likely persist over significant portion of instant repayment period. Finally, the fact that the debtor made efforts to repay a loan to one school that refused to release his degree absent payment showed that the debtor had the ability to pay given the right incentives, and actually defeated the debtor’s contention that he had made a good faith effort to repay his loans. Read More
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Categories: For Debtors

'Chapter 20' Debtors Can Strip Junior Liens, 9th Circ. Says

‘Chapter 20’ Debtors Can Strip Junior Liens, 9th Circ. Says A Ninth Circuit bankruptcy panel ruled Thursday that distressed homeowners who convert from Chapter 7 to Chapter 13 bankruptcy can strip wholly unsecured junior liens, joining a growing number of circuits that ruled the Bankruptcy Code permits “Chapter 20” debtors this lien avoidance. Boukatch et al. v. Midfirst Bank et al., case number 14-1483, before the U.S. Bankruptcy Appellate Panel of the Ninth Circuit. Read More
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William Factor Speaks on Dischargeability of Student Loans

On November 11, 2014, William Factor debated whether student loans should be dischargeable at the American Bankruptcy Institute’s Consumer Conference (Chicago). Taking the affirmative position, Mr. Factor argued that the law should be amended so that student loans can be discharged after a set period of time, subject to an earlier discharge under the Brunner test. Read More
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Categories: For Debtors

Illinois Attorney General files suit Against Debt Settlement Companies related to Student Loan Debt Scams

Yesterday, July 14, 2014, Illinois Attorney General Lisa Madigan filed lawsuits against two debt settlement companies, Broadsword Student Advantage LLC, and the Chicago based First American Tax Defense LLC. Read More
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Categories: For Debtors, News

Glossary of Bankruptcy Terms

Glossary of Bankruptcy Terms 363 Case – A term that has come to describe a chapter 11 case that is filed largely to facilitate the sale of the debtor’s assets pursuant to the protections of §363 of the Bankruptcy Code, as compared to a case filed to restructure the debtor’s business operations or capital structure. The process to sell the debtor’s assets usually commences shortly after the case is filed. 363 Sale – A sale of assets from a bankruptcy estate pursuant to § 363 of the Bankruptcy Code. This provision generally allows the sale of assets free and clear of liens and claims and gives a purchaser protections that are otherwise not available outside of bankruptcy. 503(b)(9) Claim – Under the BAPCPA Amendments of 2005, § 503(b)(9) was added to the Bankruptcy Code. It provides creditors with a priority claim for goods delivered to the debtor within 20 days of the petition date. Abandonment – A disclaimer of any interest by the trustee or debtor in property that is burdensome or of inconsequential value. Absolute Priority Rule – The order of payment to the different classes of creditors mandated by the Bankruptcy Code. In theory, claims with higher priority are paid in full before other claims receive anything. Junior creditors and shareholders are paid after senior creditors. Specifically, the usual order is: first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors’ claims; fourth, unsecured creditors’ claims; and fifth, equity claims. Actual Test – A construction of §365(c) of the Bankruptcy Code which limits it to situations in which the DIP is actually trying to assign the agreement to a third-party, as compared to assume the agreement as part of a plan of reorganization. See Hypothetical Test. Adequate Protection – The right of a party with an interest in the debtor’s property (such as a secured creditor) to assurance that its interest will not be diminished during the bankruptcy proceedings. Section 361 of the Bankruptcy Code addresses adequate protection issues. Adequate protection may consist of replacement liens on collateral or periodic payments for the use of collateral. Administrative Claim (Or Administrative Expense Claim) – A claim asserted against the bankruptcy estate for the actual, necessary costs and expenses of preserving the estate. This type of claim is entitled to be paid before payment to any other creditors of the bankruptcy estate except secured creditors. Often these claims are asserted by professional persons employed by the bankruptcy estate (e.g., attorneys and accountants) for fees and costs incurred in the estate administration. Adversary Proceeding – A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001. Examples are complaints to determine the dischargeability of a debt and complaints to determine the extent and validity of liens. Allowed Claim (or Allowed Interest) – a claim of a creditor (or an equity interest) that is approved for satisfaction in the bankruptcy case. Arrangement – Arrangement may refer to a variety of formal or informal agreements concerning the conditions under which a bankrupt company may operate; often, it refers to an extension of time in which debt can be paid off. This was the term used under the old Chapter XI. Arrears The amount that is unpaid and overdue as of the date the bankruptcy case is filed. The word “arrears” is usually used when referring to back child support, back alimony owed, or the amount that is past due on mortgage payments (including interest and penalties). Assets Assets are every form of property that the debtor owns. They include such intangible things as business goodwill; the right to sue someone; or stock options. The debtor must disclose all of his assets in the bankruptcy schedules; exemptions emove the exempt assets from property of the estate. Assignment for the Benefit of Creditors – A common law or state statutory method of liquidating a debtor’s assets without commencing a bankruptcy case. Typically, an independent third party is employed as the assignee who is responsible for liquidating the debtor’s assets, pursuing any litigation and disbursing monies to creditors. This common law or state statutory liquidation vehicle is not available in all states. Assume a Contract – The decision by a debtor, which must then be affirmed by the bankruptcy court, after notice and hearing, that the debtor-in-possession will be fully liable for the obligations under the lease. Typically requires the curing of most monetary defaults. Attachment – A prejudgment remedy where a court orders seizure of a property by a sheriff who retains custo… Read More
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Single Asset Real Estate Bankruptcies

SINGLE ASSET REAL ESTATE CASES I. WHAT IS A SINGLE ASSET REAL ESTATE CASE Under the Bankruptcy Code, a single asset real estate means real property constituting a single property or project, other than residential real pr operty with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental thereto. II. FILING THE CASE AND KEY ISSUES THAT ARISE A. The State Court Process 1. File before the foreclosure sale and potentially before the appointment of a receiver. Usually the case is filed after the lender initiates a state court foreclosure proceeding. Be careful not to wait too long to file. If the property has already been sold at a foreclosure sale, the bankruptcy will not help. If a receiver is appointed already, the lender may ask the bankruptcy court to allow the receiver to remain in place during the bankruptcy. B. Use of rents and adequate protection. The rents generally can be used to operate the property. Plowing the rents back into the property protects the value of the rents and the property. C. The lender usually seeks to get the stay lifted to proceed with the state court foreclosure action. 1. Section 362(d) authorizes relief from the stay under three conditions: The lender is not adequately protected; There is no equity in the property and it is not necessary for an effective reorganization; or The debtor has not filed a realistic plan within 90 days or the debtor is not paying debt service. 2. The request for stay relief has to be addressed fairly quickly in the case. Because of this, there are advantages to getting a plan on file as soon as possible. III. A SHORT PRIMER ON CRAMDOWN A. Methods of Cramdown Cramdown is the process whereby the debtor tries to restructure its debt over the objection of a the secured creditor. Historically, there are three statutory methods of cramdown: (a) providing the creditor with the indubitable equivalent, which typically meant a swap of one parcel of real estate for another or to permit the debtor to tender the collateral back to the lender in a “dirt for debt” plan); (b) sale of the collateral, or (c) deferred cash payments. In a real estate case, the more prevalent method is the third method: lien retention by the lender, and restructuring of the mortgage debt through deferred cash payments. The underlying logic of cramdown is that it insures that a lender will receive periodic cash payments, for a determined period of time, which must have a present value, equal to the value of the lender’s collateral. This appears to be the functional equivalent of a state law foreclosure, in which the lender is only assured of receiving the real estate collateral. Cramdown, in essence, gives the mortgage lender the economic equivalent of a state law foreclosure, though the secured lender does not obtain control over the property at issue. B. Issues related to the most prevalent method – deferred cash payments 1. The first task is to determine the allowed amount of the secured claim. This sometimes involves a protracted hearing on value where each side presents an appraisal and the court issues findings based upon the testimony. In 1997, the Supreme Court in Associates Commercial Corp. v. Rash held that in a chapter 13 case, the correct method of valuation where collateral is retained by the debtor is the replacement value standard. This has little relevance in a chapter 11. Generally speaking, the value is determined by discounted cash flow method. 2. Once the value is determined, the next step is to apply an appropriate cramdown interest rate. The state of the law on this is the Till case from the Supreme Court, which adopts a prime plus 1% to 3% presumption, depending upon the risk profile. 3. The next step is to determine the amortization period. No hard and fast rule on this. Most plans provide for a long amortization period, with a balloon after a certain time period. IV. MEASURES TO OBJECT TO CONFIRMATION OF A SINGLE ASSET REAL ESTATE PLAN. A. The 1111(b) election. 1. The purpose of the section 1111(b)(2) election is to prevent an undersecured mortgage lender from being “cashed out” in a plan. Such an outcome could result, for example, where a borrower proposed to pay the mortgage lender, in cash, only the current market value of the collateral. 2. Section 1111(b) allows a creditor to have its claim treated as fully secured, notwithstanding the value of the property. In In re B.R. Brookfield Commons No. 1 LLC, 735 F.3d 596, 600 (7th Cir. 2013), the Seventh Circuit held that this applied even when the lien was completely unsecured. Reasoning that “[t]he value in the collateral is immaterial; § 1111(b)(1)(A) treats the [claim subject to a security interest] as a recourse loan.” 3. Under Section 1111(b), the nominal amo… Read More
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Categories: For Debtors

You Must Disclose all Assets in Bankruptcy

When a Debtor files for bankruptcy relief, he or she must disclose all actual and potential property rights, even if he or she believes the property rights have no value. The general rule of thumb is “disclose, disclose, disclose.” Debtors rarely, if ever, get in trouble for disclosing too much, whereas failing to disclose something can lead to severe consequences. Because of the need to disclose all actual and potential property, a debtor also has an obligation to disclose whether he or she has sued anybody or might have the right to sue anybody, including on account of a personal injury. The right to sue is considered to be an interest in property. When a person fails to disclose a potential right to sue, such as for a personal injury, and then that person later tries to pursue the suit in a separate proceeding (including after the case is closed), most courts will bar the person from proceeding with the suit under the doctrine of “Judicial Estoppel.” Judicial Estoppel precludes a party from taking a position in a case that is contrary to a position taken in an earlier proceeding, including a bankruptcy case. If a person fails to disclose a potential personal injury claim in their bankruptcy schedules, courts have interpreted the failure to disclose as the same as stating that the asset does not exist. An example of Judicial Estoppel is Berge v. Kuno Mader and DMG America, Inc., which was decided in 2011. In that case, Shirley Berge, was involved in an accident with a car owned by DMG America, and driven by a DMG employee. One month before the accident, Ms. Berge filed for bankruptcy under Chapter 13. Her case was later converted to Chapter 7. After her case was converted, Ms. Berge did not amend her Bankruptcy Schedules to include the potential personal injury suit. She was then granted a discharge under Chapter 7 and started to pursue the claim. The defendant in the personal injury suit learned about the bankruptcy filing, and alleged in the underlying suit that Ms. Berge was judicially estopped from pursuing her personal injury claim because it was never disclosed in the bankruptcy. The court agreed, and concluded that Judicial Estoppel applied to bar the suit, because the prior oaths and documents Ms. Berge provided to the Bankruptcy Trustee never disclosed the potential personal injury claims. The take away from this … If you are thinking about filing for bankruptcy relief, you should realize that you have to disclose in full all rights that you might have to sue for personal injuries and other wrongs that may have been committed against you even if you do not intend to pursue the claim or think that it has no value. Read More
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Categories: For Debtors

What Is A Bankruptcy Trustee? And What Do They Do?

Whenever a Debtor files Bankruptcy, a trustee is assigned to the case. Trustees are selected as part of the United States Trustee Program, which is overseen by the Department of Justice (DOJ). At times, instead of a U.S. Trustee overseeing the case, a private trustee is appointed and supervised by the U.S. Trustee. The role of the trustee varies on whether the Debtor files Chapter 7 or Chapter 13 Bankruptcy. Essentially, the trustee plays the role of the “Bankruptcy Police,” who makes sure that the Debtor is not filing Bankruptcy fraudulently, and is not hiding any assets that can be used to pay creditors. Below you will see the summary of trustee’s role in Chapter 7 and 13 cases. Trustee’s Role In Chapter 7 Bankruptcy When a Debtor files Bankruptcy, the filing will include the petition along with other papers disclosing their personal and financial information. Information disclosed on these documents includes their current debts, property, income, and state of financial affairs. The trustee overseeing the case, reviews their Bankruptcy petition and verifies that all the information provided is accurate. One of the biggest roles the trustee plays in Chapter 7, is liquidating non-exempt assets. When a Debtor files Bankruptcy, certain assets will be qualified exempt under state law (or federal in some cases). Assets that are not exempt, will be liquidated by the trustee. In other words, the trustee will sell off the non-exempt assets and give the maximum amount of return to the Debtor’s creditors. Another role the trustee plays in Chapter 7, is making sure that there aren’t any preferential transfers occurring before filing Bankruptcy. If the Debtor forfeited or transferred property (or assets) to pay back certain creditors, it might be classified as a preferential transfer. This is because the Debtor paid a creditor over others before filing Bankruptcy. Trustee’s Role in Chapter 13 Bankruptcy In Chapter 13 Bankruptcy, the U.S. Trustee supervises the private trustee who administers the Chapter 13 case. Similarly to the Chapter 7 role, the trustee in Chapter 13 also verifies that the Debtor’s personal and financial information are being accurately reported. Once the Debtor’s forms are submitted, the trustee may raise objections to the proposed repayment plan, expenses, exemption, etc. Unlike Chapter 7, a trustee in Chapter 13 does not liquidate non-exempt assets. Instead the trustee begins to collect payments within 30 days of filing Chapter 13 Bankruptcy, in accordance to the Debtor’s proposed repayment plan. The payments made by the Debtor to the trustee are held in a temporary trust fund for creditors to collect from after the plan is approved. When the plan is approved, the Debtor will continue to make payments to the trustee, according to the repayment plan. The trustee will be responsible for tracking and distributing the funds to the creditors accordingly. The trustee can also provide some relief for the Debtor in the form of objecting to improper claims by creditors. Creditors must file a “proof of claim” in order to get paid through the Chapter 13 plan. If a Chapter 13 trustee finds that a proof of claim was not filed out properly or does not have correct documentation, it can object to it and possibly have it barred from being paid through the Chapter 13 plan. It is very important that every Debtor cooperates with the Trustee, and remember that they are not there to represent you or your best interests. We at the Law Office of William Factor, Ltd., are very experienced in dealing with trustees. If you, a family member, or friend are considering Bankruptcy and have questions please contact one of our distinguished Northbrook Bankruptcy attorneys at the Law Office of William J. Factor at (312) 878-6976 , for your free, no obligation consultation!! Read More
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Unable To Pay Your Property Taxes? Chapter 13 Can Be a Solution!

In Illinois, Property Taxes are due each year. If a homeowner does not pay their Property Taxes a year after they are due, a lien will automatically arise on their home in order to secure those taxes. Eventually a home can be sold for delinquent Property Taxes in what is called a Tax Sale, in which a third party acquires a “Certificate of Purchase” on the home. Unlike a foreclosure sale, the owner of the property is not obligated to leave the home and still has time to cure the Property Tax liability with interest, up to three years in some cases to tender payment. The third party’s “Certificate of Purchase” can be best described as a contingent interest, this is because if the tax liability is not cured before the deadline, then the third party acquires ownership of the home, to the demise of the original homeowner who loses the property. On January 7, 2014,the United States Court of Appeals for the Seventh Circuit confirmed that Chapter 13 Bankruptcy is a method of not just curing the liability on Property Taxes, but also extending the deadline to tender the Property Tax payment. In this case, the Debtors owed Property Taxes, and the house had already been sold in a Tax Sale. The Debtors were successful in having their Chapter 13 plan confirmed and paying their delinquent Property Taxes directly to the county in installments through the Chapter 13 plan. Given the nature of Bankruptcy proceedings and the length of the payment plan, more than three years had already passed in between the Tax Sale and the time in which the Chapter 13 plan had been satisfied. The Creditor argued that due to the time lapse, it had statutorily acquired the rights to the home. The Court disagreed with the Creditor’s argument, stating in pertinent that a Chapter 13 plan may modify the rights of holders of secured claims (in this case the Creditor), and pay the liability over the course of the plan. In addition, the automatic stay protection (protects against any act to obtain possession of property or enforce any lien by the Creditor) applied in this case. Finally, given the Chapter 13 plan was successful, the Court noted that the Creditor’s rights had already been treated for. It should be noted that in this case the Creditor did not receive a notice of the Bankruptcy by the Debtor, a crucial and costly mistake in many instances. Given the Creditor did not mention this from the start, the argument was considered to be waived. So if you find yourself in this situation, avoid any potential complications and send a notice to the owner of the “Certificate of Purchase” along with your other Creditors. It should also be noted that if the Debtor had failed to satisfy the Chapter 13 plan, the Creditor would have been granted a relief from stay, giving it the right to acquire ownership of the property given the time lapse. Financial difficulties can make it hard to pay liabilities, especially Property Taxes. Don’t lose your home over Property Taxes, the Northbrook bankruptcy attorneys at the Law Office of William J. Factor are experts in developing strategies to help you keep your home. As always, please do not hesitate to contact our Northbrook, IL Chapter 13 bankruptcy attorneys at (312) 878-6976 for your free, no obligation consultation!! Read More
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