ANALYZING YOUR BUDGET TO DETERMINE IF BANKRUPTCY WILL HELP
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A final ingredient in the financial picture of a family or individual is a complete analysis of ongoing expenses and income. Only with this information in hand can the likely outcome of a bankruptcy be projected, for the family will continue to have its usual expenses, even if most or all debts are discharged, and will have to pay them with the anticipated available income.
A family or individual that is considering bankruptcy must therefore put together a budget of ongoing anticipated expenses and income. Once this is done, it may become apparent that bankruptcy by itself will do little to solve the financial problem because, even with the elimination of most or all debts, ongoing expenses still significantly exceed anticipated income. In such cases, at least part of the solution will be to pare expenses or to raise income.
Cutting expenses is never easy. Families must look at such major items as housing expenses. Is cheaper housing available? Other items, such as restaurant meals, fancy automobiles, vacations, expensive clothes and other luxuries must sometimes be given up. Smaller savings can be made by conserving energy, cutting out extra phone service options, reducing or eliminating cable television bills, and cost-conscious shopping at thrift stores, garage sales and supermarkets.
The alternative, of course, is to increase income. This can sometimes be achieved by a spouse working outside the home, though these gains may be offset by expenses for child care and transportation. A lower income family may be eligible for government benefits such as food stamps, energy assistance payments or public assistance.
In any case, budget information is important for analyzing whether bankruptcy makes sense. It is also critical for determining whether a Chapter 13 case is feasible, and it is required on the schedules filed in every bankruptcy case. Creditors and the court are permitted to examine this information if they wish, though usually they do not.
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In 2005, the United States substantially changed its bankruptcylaws, adding a means test to prevent wealthy debtors from filing for Chapter 7Bankruptcy. The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who make an income, as calculated by the Code, above the median income of the debtor's state to an income-based test. This test is referred to as the "means test." The means test provides for a finding of abuse if the debtor'sincome is higher than a specified portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances." Debtors whose income is below the state's median income are not subject to the means test. Notably, the Code-calculated income may be higher or lower than the debtor's actual income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code's "current monthly income" as "presumed income." If the debtor'sdebt is not primarily consumer debt, then the means test is inapplicable. Thus, the means test is "a formula designed to keep filers with higher incomes from filing for Chapter 7bankruptcy. (These filers may use Chapter 13bankruptcy to repay a portion of their debts, but may not use Chapter 7 to wipe out their debts altogether.)" The bankruptcy means test is rather complex but quite generous and most debtors have no trouble meeting its requirements. Consumers can use a means test calculator to determine their eligibility. Some bankruptcy practicioners have suggested that the means test is not all that fair or equitable, and have somewhat cynically pointed out that the reference to consumer protection in the bankruptcy act is ironic at best (Orwellian at worst), since those with primarily consumer debt are required to pass a means test while businesses are not. What is undeniable is that it is complex, and the terms that govern many parts of it - including those terms that control whether it applies at all - are of unsettled definition.
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Most individual debtors filing for bankruptcy relief are required to complete either Official Bankruptcy Form 22A or 22C (Statement of Current Monthly Income and calculations). Bankruptcy Form 22A is the form chapter 7debtors will complete for “means testing” purposes; Form 22C is the form chapter 13debtors will complete. [The Official Bankruptcy Forms can be found on the Administrative Office of the U.S. Courts Web site.] A debtor must enter income and expense information onto the appropriate form (i.e., Form 22A or Form 22C) and then make calculations using the information entered. Some of the information needed to complete these forms, such as a debtor's current monthly income, comes from the debtor's own personal records. However, other information needed to complete the forms comes from the Census Bureau and the Internal Revenue Service (IRS).
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A petition mill is a fraud in which the perpetrator poses as a financial advisor, sometimes as a credit counselor or paralegal, filing hastily-prepared bankruptcy documents in the name of victims who come to the advisor as clients. The bankruptcy filing is often both incomplete and inappropriate for the victim's condition; and, often, the victim does not even realize that a bankruptcy has been filed. Victims are people in financial trouble who believe they are becoming clients of a professional operation. The fraudster promises to make the foreclosures, evictions, repossessions, high interest rates on loans, and other debt problems go away. The victim pays a large initial fee for the fraudster's services, and the fraudster usually has the victim sign blank documents. Sometimes the victim is also told to make their usual payments directly to the fraudulent advisor instead of the real creditors, or to transfer their real estate to the fraudster. The payments are stolen by the fraudster instead of being used to pay victims' debts, and real estate is often deeded in fractional shares to other victims unknowingly under bankruptcy, complicating ownership to make foreclosures even more difficult by having multiple (fraudulent) bankruptcies involved in the property.
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In other petition mill schemes, the fraudster simply creates summary bankruptcy filings for the victim. The victim is then told to file pro se in court and deny that anyone helped prepare the documents. According to the United States Trustee Manual, volume 5, chapter 5, the following are warning signs of a petition mill scheme:
Pro se bankruptcy petition where the debtor says no one assisted him/her, but the debtor is clearly unfamiliar with the bankruptcy system
Pro se petition filed despite the debtor denying filing bankruptcy
Debtor failing to attend the section 341 meeting, where creditors and the United States Trustee first meet with the debtor
"Face sheet" (suspiciously small) filing with a single creditor listed, usually the mortgagee or the landlord
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MONEY ISLAND MARINA, LLC, Plaintiff-Appellant,
v.
ROGER MAURO and LOIS MAURO, their heirs, devisees, and personal representatives, and his, her, their, or any of their successors in right, title, and interest, Defendants-Respondents.
In this appeal, plaintiff Money Island Marina, LLC (MIM) argues that the findings made by the trial judge in dismissing its claims at the conclusion of a bench trial were either based on erroneous legal rulings or were contrary to the weight of the evidence. Finding no error, we affirm.
The issues posed in this civil action are limited and discrete. MIM, a limited liability company ostensibly controlled by Tony Novak (Novak),[1] seeks a declaration, by way of this quiet title action, that defendant Lois Mauro's mortgage on the property should be invalidated or have no further impact on its ownership rights. MIM argues, however, that the case should be considered in light of other circumstances, some of which have been resolved in other proceedings. That is, MIM contends that defendant Roger Mauro (Mauro) assaulted Novak by vehicle in 2006 and that this circumstance, and the resulting personal injury action he commenced, should have been more fully considered in the disposition of this quiet title action. We described the vehicular assault allegations in earlier opinions in a criminal matter commenced against Mauro.[2] In or about 2008, Novak brought a personal injury action against Mauro.[3]
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Of greater relevance to the matter at hand is the fact that in 1995, Mauro purchased a marina in Downe Township and then, on December 12, 2008, sold the marina to Joseph Acosta for $425,000, receiving more than $100,000 in cash and a purchase money mortgage to secure repayment of a note payable to Mauro from Acosta of the principal amount of $313,000.
Acosta filed a Chapter 7bankruptcy proceeding on February 28, 2011, and, on April 2, 2012, Mauro assigned the Acosta mortgage to his mother, defendant Lois Mauro (Lois). Lois, as assignee of the mortgage, filed a proof of claim in the Acosta bankruptcymatter on October 16, 2012.
At a hearing in bankruptcycourt on November 13, 2012, Novak bid $12,000 to purchase the marina. When the bankruptcy judge asked Novak if he understood the marina is "subject to the mortgage that's on the property," Novak responded, "Yes." An order entered by the bankruptcy court on November 26, 2012, confirmed the sale of the marina to Novak "or his assignee" for $12,000 "subject to all liens, mortgages and encumbrances on the real estate." The next day, the bankruptcy trustee executed a quitclaim deed in MIM's favor; the deed acknowledged that the grantor had made "no promises as to ownership or title, but simply transfers whatever interest the [g]rantor [i.e., the trustee] has to the [g]rantee [i.e., MIM]." This recitation is in accord with what it means to convey a property interest by quitclaim deed. See N.J.S.A. 46:5-3. The quitclaim deed was recorded on December 12, 2012. On May 16, 2013, the bankruptcy court granted the trustee's motion to expunge Lois's proof of claim in light of the fact that the mortgage remained attached to the property transferred to MIM.
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On February 14, 2013, MIM, as the assignee of the marina purchased by Novak through the bankruptcy court, filed this quiet title action. A few months later, Novak's personal injury action against Mauro settled; Novak received $5000, and Mauro obtained a general, unconditional release of Novak's claims. Lois commenced an action seeking to foreclose her mortgage on the marina.
MIM's quiet title action and Lois's foreclosure action were both the subject of a single bench trial conducted over the course of two days. The trial judge rightfully expressed in her written opinion that "[t]here is something very odd about this litigation and the manner in which the parties have pursued or defended against claims." For example, MIM claimed that Novak's settlement of the personal injury action somehow provided MIM with ownership of the marina free of the mortgage; however, as the judge observed, the release that memorialized the settlement contains no such condition or agreement, and the judge found no other evidence to support MIM's contention.[4] And, while Novak may have thought, as the judge stated, that he had "outwitt[ed] the Mauros by outbidding them at the bankruptcy hearing" for the marina, the bankruptcy record clearly demonstrates that the interest in the marina which Novak purchased was taken subject to Lois's mortgage. The judge's findings also demonstrate that Roger's assignment of the mortgage to Lois was supported by adequate consideration; she noted that Mauro's financial circumstances had long been troubled by Acosta's failure to make the monthly payments required by the note and mortgage, as well as his many other legal matters, including those involving Novak, resulting in Lois providing Mauro with $200,000 for his support, for which she was compensated by assignment of the mortgage. The judge's findings, based upon what is both clearly demonstrated by the various documents and transcripts emanating from the bankruptcy proceeding and the personal injury settlement, as well as by the judge's careful assessment of the credibility of the many witnesses, are entitled to our deference. Rova Farms Resort Co. v. Inv'rs Ins. Co. of Am., 65 N.J. 474, 483-84 (1974); Stephenson v. Spiegle, 429 N.J. Super. 378, 382 (App. Div. 2013).
Accordingly, with these few comments, we affirm the dismissal of the quiet title action substantially for the reasons set forth by Judge Anne McDonnell in her well-reasoned written decision.[5]
Affirmed.
[1] To add to some of the confusion about the underlying circumstances, the actual owner of MIM has not been adequately disclosed. At his deposition, Novak asserted he is MIM's "authorized representative," but he denied knowledge about the identity of the owners, saying: "[w]e are trying to figure it out. We do have a dispute and I do not know." Upon further questioning, he identified one of the disputed owners as his stepson and disclosed without clarity that other members "have since abandoned" ownership or otherwise "disavow[ed] and resign[ed]."
[2] On February 21, 2013, we reversed the trial court's dismissal of the criminal prosecution, finding no violation of Mauro's speedy trial rights. State v. Mauro, No. A-4950-11 (App. Div. Feb. 21, 2013). The Supreme Court later remanded for our reconsideration in light of State v. Cahill, 213 N.J. 253 (2013), but we again came to the same conclusion. State v. Mauro, No. A-4950-11 (App. Div. June 10, 2014).
[3] The date the personal injury complaint was filed is not disclosed in the record on appeal. The filing date, however, is not particularly relevant; we assume the complaint was filed in 2008 because of its docket number.
[4] Indeed, Mauro was no longer the owner of the mortgage; it had been assigned to Lois well before Novak and Mauro settled the personal injury action. The mortgagewas not something available to Mauro to negotiate with.
[5] By way of the same written decision, the judge determined that the answer and counterclaim filed by Novak and MIM in Lois's foreclosure action were non-contesting. Consequently, the judge referred the matter to the Office of Foreclosure for entry of final judgment, subject to any dispute about the amount of the judgment or MIM's right to a fair market credit or other equitable relief. MIM does not present an argument here regarding the judge'sdisposition of the foreclosure issues; indeed, MIM correctly recognizes that, until entry of final judgment in the foreclosure action, it has no right to file a notice of appeal in that regard.
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A discharge in United Statesbankruptcylaw, when referring to a debtor's discharge, is a statutory injunction against the commencement or continuation of an action (or the employment of process, or an act) to collect, recover or offset a debt as a personal liability of the debtor. The discharge is one of the primary benefits afforded by relief under the Bankruptcy Code and is essential to the "fresh start" of debtors following bankruptcy that is a central principle under federal bankruptcylaw. A discharge of debts is granted to debtors but can be denied or revoked by the court based on certain misconduct of debtors, including fraudulent actions or failure of a debtor to disclose all assets during a bankruptcycase.
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The benefit of the discharge injunction is narrower than (but similar to) the benefit afforded by the automatic stay in bankruptcy. In the United States, there are generally seven kinds of debtor discharges in bankruptcy, found in the following statutes:
11 U.S.C. § 1141(d)(1)(A) (relating to discharges resulting from confirmation of a Chapter 11 plan of reorganization);
11 U.S.C. § 1228(a) (relating to certain family farmer or fisherman cases);
11 U.S.C. § 1228(b) (relating to certain family farmer or fisherman cases);
11 U.S.C. § 1328(a) (relating to certain cases involving adjustment of debts of an individual with regular income);
11 U.S.C. § 1328(b) (relating to certain cases involving adjustment of debts of an individual with regular income).
The effect of the debtor's discharge is provided for at 11 U.S.C. § 524. In addition, certain limitations on the debtor's discharge are described at 11 U.S.C. § 523.
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A secured creditor of a debtor in Chapter 13 (except a creditor secured only by a lien on real property used as the debtor's principal residence) faces the prospect of a repayment plan forced upon it if the bankruptcy court confirms the debtor's plan. Confirmation usually follows the filing of a petition by fewer than six months. Thus, unless the secured creditor is concerned about uninsured property having significant value, or unless the secured creditor seriously doubts the likelihood of prompt confirmation of a plan, the expense of seeking relief from stay may not justify the benefit. Moreover, as suggested by In re Radden, it may be difficult for the secured creditor to prevail on a motion seeking relief from stay. As in a Chapter 7 case, a secured creditor with a consensual lien on a Chapter 13debtor's residence will often seek relief from stay in order to foreclose if the debtor is in arrears on mortgage payments and if it appears unlikely that the debtor will be able to fund a plan that both cures arrearages and maintains ongoing mortgage payments. A bankruptcy petition, once it is filed, immediately operates as an automatic stay, holding in abeyance various forms of creditor action against the debtor. Automatic stay provisions work to protect the debtor against certain actions from the creditor, including: (1) beginning or continuing judicial proceedings against the debtor, (2) actions to obtain debtor's property, (3) actions to create, perfect or enforce a lien against a debtor's property, and (4) set-off of indebtedness owed to the debtor before commencement of the bankruptcy proceeding.
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A court may give a creditor relief from the stay if the creditor can show that the stay does not give the creditor "adequate protection" or if it jeopardizes the creditor's interest in certain property. The court may give relief to the creditor in the form of periodic cash payments or an additional or replacement lien on the property. Concerned that debtors may exploit some of the advantages of automatic stay provisions, Congress provided some relief to certain creditors, such as those creditors who have a secured interest in a single real estate asset, from the automatic stay in 1994. Congress required such debtors to either file a plan that has a reasonable chance of being accepted within a reasonable amount time or to make to each such secured creditor monthly payments in the amount equal to interest at a current fair market rate on the value of the creditor's real estate. Also in 2005, Congress added two more exceptions to the automatic stay provisions. These exceptions concern landlords seeking to evict tenants. First, any eviction proceedings in which the landlord obtained a judgment of possession prior to the filing of the bankruptcy petition may be continued. Second, eviction proceedings filed after bankruptcy proceedings are exempt from the automatic stay if they involve evicting the tenant on the basis of using illegal substances or "endangerment" of the property.
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Pursuant to the new provisions of BACPA, certain restrictions were added to section 362 as to the automatic stay. If the debtor had a case dismissed in a case pending during the year before the bankruptcy case was filed, the automatic stay will expire to a certain extent unless the debtor obtains an order extending it within one month. If the debtor had two cases pending in the year prior to filing, the automatic stay does not go into effect unless the debtor files a motion.
In bankruptcylaw, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United StatesBankruptcy Code, 11 U.S.C. § 362, the stay begins at the moment the bankruptcy petition is filed. Secured creditors may, however, petition the bankruptcycourt for relief from the automatic stay upon a showing of cause. As noted in a Senate Report: The automatic stay is one of the fundamental debtor protections provided by the bankruptcylaws. It gives the debtor a breathing spell from his creditors, stopping all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. Notes of Committee on the Judiciary, Senate Report No. 95-989. For example: a creditor with a claim that arose before commencement of the bankruptcy case cannot contact the debtor requesting or demanding payment, cannot request from the debtor security for existing unsecured or undersecured debt, cannot initiate a lawsuit against the debtor or pursue litigation activities in a pending lawsuit against the debtor, cannot attempt to enforce a judgment against the debtor and must act to stop enforcement activities that are already in motion (e.g. notify a sheriff to stop a wage garnishment or to refrain from a scheduled execution sale), cannot perfect a lien against property of the estate, cannot repossess collateral that is property of the estate, and cannot initiate or pursue non-judicial or judicial foreclosure against property of the estate.
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This debtor protection is truly automatic. No hearing is held, no judge's signature required. It is invoked simply by the stamp of the bankruptcy clerk's time clock when a petition is presented for filing. Creditors are bound by the automatic stay even before they know of it, but sanctions attend only wilful violations (see Bankr. Code 362(h)). There are some exceptions to the automatic stay (see Bankr. Code 362(b)) and the stay does not preclude a creditor from taking action against any entity other than the debtor (e.g. a co-debtor, guarantor, or insurer). The automatic stay is temporary. It terminates automatically upon the occurrence of specified events (see Bankr. Code 362(c)). Also, upon an appropriate showing in a noticed hearing in bankruptcy court, creditors may obtain relief from the stay that either annuls, terminates, or modifies the stay, or conditions continuance of the stay upon certain events, such as interim payments by the debtor to the secured creditor (see Bankr. Code 362(d) and Bankr. Code 361). A secured creditor may seek relief from the stay in order to pursue its state law rights against the collateral or may seek relief from the stay as a way to force a debtor to make interim payments to the secured creditor as a condition to the stay remaining in effect.
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Relief from stay in a consumer Chapter 7 Creditors secured by liens on personal property do not often seek relief from the automatic stay in a consumer Chapter 7 case. With respect to much of the collateral securing debt in a consumer Chapter 7 case - - an automobile, household furnishings, or jewelry - - other solutions are common: (1) the debtor continues payments of the secured debt, uninterrupted by the filing of the bankruptcy petition; or, (2) the debtor reaffirms the secured debt and begins making payments under the reaffirmation agreement; or, (3) the debtor redeems collateral from the lien; or, (4) the debtor surrenders the collateral to the secured creditor. If the debtor does none of the above, the creditor may simply wait until the grant of discharge and then pursue its state law remedies against the collateral. A secured creditor of a Chapter 7debtor is most likely to seek relief from stay and not await automatic termination of the stay in three situations: (1) When property of significant value, such as an automobile, is uninsured or is otherwise subject to unacceptable risk; (2) When property of significant value, such as an automobile, is depreciating rapidly and the creditor has reason to believe that the debtor will not promptly surrender the collateral, reaffirm the debt secured by the collateral, or redeem the collateral from the lien; (3) When the creditor holds a consensual lien on a debtor's residence and the debtor has defaulted on mortgage payments and appears unable to maintain continuing mortgage payments or promptly cure arrearages.
