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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.]

Bankruptcy Cases in the News

Bankruptcy Cases in the News

Judge Thomas Tucker of the U.S. Bankruptcy Court for the Eastern District of Michigan recently issued an interesting and important decision in the Mehlhose case (11-64190), the lengthy opinion discusses, among other things, the inherent power of the Bankruptcy Court to sanction (punish) debtors who do not play by the rules and make dishonest disclosures. In this case the Court determined that the husband-wife debtors had significantly under reported their income and filed their case in bad faith otherwise. Specifically, Judge Tucker determined that the debtors “lied under oath” concerning their income and filed a case that could not serve a legitimate purpose as they had or should have known that their particular debts were non-dischargeable. Consequently, it was determined that the case was filed in bad faith and merely for delay. The Court set up an evidentiary hearing that the debtors did not appear to testify and explain their actions. Judge Tucker noted that a Bankruptcy Court has both the inherent and the statutory authority to sanction misconduct:

In John Richards Home Bldg. Co., L.L.C. v. Adell (In re John Richards Homes Bldg. Co., L.L.C.), 404 B.R. 220, 226-27 (E.D. Mich. 2009), the court discusses the scope of a bankruptcy court’s inherent power to issue sanctions as follows:

    Bankruptcy Courts, like all courts, have an inherent power to issue sanctions, as explained by the Untied States Supreme Court in the Chambers case. See Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L. Ed. 2d 27 (1991) (“Courts of justice are universally acknowledged to be vested, by their creation with power to impose silence, respect, and decorum, in their presence, and submissions to their lawful mandates.” (Quoting Anderson v. Dunn, 19 U.S. 204, 6 Wheat. 204, 227, 5 L.Ed. 242 (1821)). The Sixth Circuit Court of Appeals has similarly stated that “[b]ankruptcy courts, like Article III courts, enjoy inherent power to sanction parties for improper conduct.Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F. 3d 472, 477 (6th Cir. 1996). … [T]he inherent power to issue sanctions is not limited to only those instances where a party violates a court order. “The federal courts’ inherent power to protect the orderly administration of justice and to maintain the authority and dignity of the court extends to a full range of litigation abuses.Mitan v. Int’l Fid. Ins. Co., 23 Fed. Appx. 292, 298 (6th Cir. 2001) (ruling that a court can award sanctions “when bad faith occurs”).

In addition to a bankruptcy court’s inherent authority to sanction misconduct, 11 U.S.C. § 105(a) provides a bankruptcy court with statutory authority to do so. It provides:

(a)The court may issue any order, process, or judgment that is necessary;or appropriate to carry out the provisions of this title. No provisions of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

In the end, the Court noted that sanctions would well include attorney fees. Debtors were sanctions by having their case dismissed, being ordered to pay reasonable attorney fees and costs and having been barred from refilling for 2 years. In filing your case, make sure to make complete and honest disclosures of debts, assets and income to the court, trustee and your creditors.

That is the trade-off. To obtain a discharge and a fresh start, the debtor must make an honest and full disclosure. Do not jeopardize your life or liberty and fresh start.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in the city of 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.]