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Bankruptcy Cases in the News: Federal and State Exemptions

Bankruptcy Cases in the News

Federal and State Exemptions

     Under the Bankruptcy Court, a debtor may elected between two sets of exemptions in a Chapter 7 case, the Federal exemptions, or (in Michigan) the Michigan exemptions. Generally, the Federal exemptions give the greatest coverage of property to the debtor. Exempt property is property that the debtor gets to keep from creditors and the trustee, which forms the basis of his or her fresh start going forward.

     In certain interesting circumstances, however, the Michigan exemptions are more favorable to the Chapter 7 debtor and should be elected. For instance, under the Federal exemptions, exemptions about $42,000.00 in home equity can be exempted by a married couple. However, if the home is jointly owned as entireties property (husband and wife) either may file individually a bankruptcy and exempt their entire equity, no matter how great, from all individual creditors.

     That is because the historical purposes of the state law favors protecting an innocent spouse from the debts of his or her spouse to preserve their primary residence. This concepts has been explored and defined in several published court decisions. For instance, see: In re: Trickett, 14 Br 85 (Bank W.D. Michigan) 1981; and, In re: Grosslight, 757 F2d 773 (6th Cir. 1985).

     One of the keys to this relief is the absence of joint indebtedness. So, if the non-filing debtor is jointly responsible on some of the incurred debt, the trustee may argue that it should be allowed to administer the estate (sell the martital home) to the extent of the joint obligations. Still, this type of harsh relief must be examined on a case-by-case basis as noted by Judge McIvor in In re: Edwin Harlin, 325 BR 184, 189 (Bank E.D. Mich) 2005:

“As a general rule, courts have been very reluctant to apply 11 USC §363 (h) to allow the sale of entireties property owned by the debtor, and a non-debtor spouse. The case law is well summarized in Collier on Bankruptcy as follows: Disputes over the applicability of a section (h) to tenancies by the entireties have created the largest number of reported cases under section, perhaps because of the unique nature of the ownership interest, the variations among the states as to the nature of the interest and the rather draconian remedy that section 363(h) gives the trustee, contrary to the deep historical roots of the form of title, which is supposed to protect each spouse from the unilateral action of the other… Thus, although generally speaking property held by the debtor as tenant by entirety is subject to sale under section 363(h), courts have erected various obstacles to such sale.”

     This suggests, of course, that married couples should strongly consider never co-signing for the other and avoid all joint debt. Also, they might consider making sure to concentrate payments to reduce and eliminate joint debt as a priority over individual debt, in the ordinary of their payments.

     If you or a loved one are considering whether bankruptcy relief would be helpful for you, please make sure to consult a qualified debt relief agency/attorney. Guy Vining is available for a no-charge initial bankruptcy consultation and would be pleased to meet with you.

Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Top Ten Bankruptcy Mistakes: Bankruptcy Misconduct

TOP TEN BANKRUPTCY MISTAKES

 

      #7

             Bankruptcy Misconduct

 

In earlier postings it has been discussed that bankruptcy relief is available to the honest debtor. In a recent unpublished case by the Sixth Circuit Court of Appeals this concept was illustrated. The debtor, a businessman obtained significant loans based upon personal financial statements which were untrue. The Bankruptcy Court denied discharge, as to the defrauded creditor, and the Court of Appeals affirmed (agreed with) that decision. The Court of Appeals analysis, in part, follows:

    The principal purpose of the Bankruptcy Code is to afford a “fresh start” to the “honest but unfortunate debtor.” Grogan v. Garner, 498 U.S. 279, 286-87 (1991). The discharge of prepetition debts provided under § 727(b) and the discharge injunction of § 524(a) effectuate the debtor’s fresh start. See Green v. Welsh, 956 F.2d 30, 33 (3d Cir. 1992).

    (“The protection afforded by the discharge injunction… furthers one of the primary purposes of the Bankruptcy Code – that the debtor have the opportunity to make a financial fresh start.”). Some debts, however, are “nondischargeable,” such that the debtor’s liability continues even after emerging  from bankruptcy protection. Section 523 of the Bankruptcy Code specifies these exceptions, which include, among others, debt obtained through fraud. Section 523(a)(2)(B) addresses debt obtained by certain false statements in writing.

    For a debt to be nondischargeable under § 523(a)(2)(B), four conditions must be met: the debtor must have sought “money, property, services, or an extension, renewal, or refinancing of credit” by use of a writing (1) “that is materially false;” (2) concerning “the debtor’s or an insider’s financial condition;” (3) “on which the creditor… reasonably relied; and” (4) “that the debtor caused to be made or published with intent to deceive…” 11 U.S.C. § 523(a)(2).

Make sure to discuss with your attorney candidly any skeletons which may be in your closet. In the attorney-client relationship all conversations are privileged and confidential. Your attorney can not effectively counsel or represent you when you are not forth coming with all information, pro and con. There are other kinds of misconduct that may also result in denial of a discharge for obtained debt.

 

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]