Tag Archives: bankruptcy

Can the Bankruptcy Court Take Away Your Social Media Accounts?

all-sm-icons-onlyIf they are business accounts, then yes. A Texas bankruptcy court recently ruled that social media accounts (like Twitter and Facebook) used to promote a business are part of that business’s bankruptcy estate, and the bankruptcy court can order the owner to turn over the passwords. Personal social media accounts, on the other hand, are not part of a business’s bankruptcy estate, said the judge. Of course, determining whether a social media account is personal or instead belongs to a business is the ten thousand dollar question. Especially when a business is small and controlled by one or a few owners, that determination can be tricky.

In the Texas case, Jeremy Alcede , the founder and majority owner of Tactical Firearm, filed a Chapter 11 bankruptcy on behalf of his gun shop. As part of the reorganization, a new owner took control of the business. The court ordered Alcede to cede control of all property belonging to Tactical Firearm, including Alcede’s Twitter and Facebook account passwords. In a move that garnered even more attention, Alcede refused to turn over the passwords, opting instead to head off to federal jail.

Alcede argued that the social media accounts where personal, since he created the accounts and administered them. Over the years, the Twitter and Facebook pages, along with the billboard outside the store, became somewhat famous for Alcede’s rants against Obama and gun control advocates. The judge, however, pointed to other factors indicating that the accounts belonged to the business: Both accounts referred to Tactical Firearms and contained links to the business website, both accounts were used to promote Tactical Firearms and increase sales, the Facebook account was set up as a page (generally used by businesses) instead of a profile (generally used by individuals), and the Twitter account’s profile contained a description of Tactical Firearm.

 

Jointly Owned Homes in Bankruptcy: What Happens?

housedividedA house divided against itself cannot stand.  

— Abraham Lincoln (assassinated 150 years ago yesterday)

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

My sister and I are joint owners of a home left to us by our parents. I live in the home and pay for the taxes and upkeep. There is no mortgage. My sister recently filed for Chapter 7 bankruptcy.  She and I are barely on speaking terms. 

Here’s the problem. I got a letter from the bankruptcy trustee telling me that if I want to keep the home, I have to buy my sister’s share of the home. If I don’t, the trustee will sell the house. The home is worth $200,000, and I don’t have $100,000 to fork over to the trustee. 

Can the trustee do this?  

Yours truly, 

Jim

Dear Jim,

Most likely the bankruptcy trustee will be able to sell your home if you can’t come up with the money. But once the home is sold, the trustee will turn over half of the proceeds to you.

(I am assuming that your parents did not create a legally binding directive permitting you to remain on the property. If they did, you should immediately get a lawyer to respond to the trustee.)

What Happens to Property in Bankruptcy

Your sister’s Chapter 7 bankruptcy filing automatically created a bankruptcy estate composed of all her assets. A bankruptcy trustee was appointed to administer the assets in her case. Like everyone filing for bankruptcy, she can keep certain property if it is “exempt.” However, homes in which you don’t live are usually not exempt. (Learn more about how Chapter 7 bankruptcy works and why the trustee sells property.)

If an item of property is not exempt, the trustee can sell it and use the proceeds to repay creditors. Even though your sister owns only half of the property, the equity in her half is a nice chunk of money that could go to her creditors.

When Can a Trustee Sell Co-Owned Property?

A trustee can sell a piece of property even if the debtor (your sister) doesn’t own the whole thing. But in order to do so, the trustee must meet the following criteria:

  • It’s not practical to divide up the property. A large tract of land might be subdivided to sell just the debtor’s share, but a single house and lot can’t be sawed in half to do that.
  • Selling the debtor’s undivided interest would bring in less money than selling the entire parcel. In your situation, it is unlikely that anyone else would buy your sister’s half of the property for what it is really worth, because the buyer would still have to deal with you.
  • The benefit to the bankruptcy estate from a sale of the entire property outweighs the detriment that will be faced by the other owners.
  • The property is not used for the production of energy.

In your situation, it’s extremely likely that the trustee will be able to sell the home. But keep in mind, once the trustee does so, he or she will have to give you half of the proceeds from the sale. So, if the sale nets $200,000, you will get $100,000 and the bankruptcy estate will get the other $100,000 (which will then be used to pay your sister’s creditors).

Coming Up With Money for the Home

If you have decent credit and you can afford to make payments on a $100,000 mortgage, consider getting a home loan and using the money to buy your sister’s share from the bankruptcy estate. In that way, you’ll become a 100% owner of the home.

–Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer. 

Find Leon on Google+

 

Can You Keep Horses and Other Pets in Bankruptcy?

2horsesASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I am considering Chapter 7 bankruptcy and am wondering what will happen to my two pet horses if I file? They are not worth much; I probably couldn’t even give them away. But I don’t want to file bankruptcy if I have to give them up.

Alysia 

Dear Alysia,

There are a few issues that arise when you file for Chapter 7 bankruptcy and have horses or other household pets. The first is whether the bankruptcy trustee will sell the horses and use the proceeds to repay your creditors (since your horses aren’t worth much, this is unlikely). The second is whether the bankruptcy trustee will dismiss your Chapter 7 bankruptcy because your pet care expenses are unreasonable.

Your Horses Are Property of the Bankruptcy Estate

When you file for Chapter 7 bankruptcy, all of your assets become property of the bankruptcy estate. This includes all of your personal property, and animals are personal property. However, state and federal law allow you keep certain types of property – called exempt property. The idea is that you shouldn’t be left without basic items for living and working. (Learn how bankruptcy exemptions help you keep property.)

Are Your Pets Exempt Property?

A few states have laws that exempt pets. If you live in one of those states, you may be able to use the exemption to keep your horses.

Most states don’t have a specific exemption for pets, but many have a wildcard exemption. A wildcard exemption allows you to exempt a certain dollar value of any type of personal property.  Because your horses aren’t worth much, you may be able to use a wildcard exemption to keep them. (To find out if your state has a pet exemption or wildcard exemption, see Bankruptcy Information for Your State.)

Will the Trustee Abandon Your Horses?

Even if you cannot exempt your horses, the trustee may decide to abandon (not take and sell) them. A trustee will do this if your horses have little value, or because it would be too hard for the trustee to sell them.  (Learn more about when a trustee will abandon property in bankruptcy.) In your situation, since your horses aren’t worth much, this is likely to happen.

Keep in mind though, if your horses are valuable (when I say value, I mean market value), the bankruptcy trustee will explore the possibility of selling them.

Are Your Pet Care Expenses Unreasonable? 

When you file for bankruptcy, you fill out a number of forms that contain information about your income, expenses, debts, assets, and recent financial transactions. If the bankruptcy trustee feels that your living expenses (listed on a form called Schedule J) are unreasonable high, he or she may ask the court to dismiss your bankruptcy case. Spending money to care for horses could be an issue if the court thinks that money should go to your creditors.

Here’s what the court is likely to look at:

The cost of maintaining your horses.  The higher the cost, the more likely the court will balk. For example, if you spend $100 per month on pet care, that is unlikely to be questioned. On the other hand, if you regularly spend $1,000 per month caring for your horses, the court is more likely to toss your case.

The amount of your other expenses.  The court is likely to look at your other living expenses as well. If you spend far below average on other things so that you can pay for your horses, that fact will cut in your favor. For example, things like driving a very old, inexpensive car, scrimping on food and utilities, and foregoing any kind of middle class luxury could persuade a trustee to let your case to proceed.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Can I Refinance a Mortgage That Was Discharged in Bankruptcy?

Leon Bayer PhotoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed bankruptcy in 2009. One of the debts discharged in the bankruptcy was a mortgage with Wells Fargo. Upon the advice of my lawyer, I did not reaffirm the mortgage in the bankruptcy. I kept my house, and I have stayed current on my mortgage.

I just asked Wells Fargo to refinance my mortgage at a lower rate. It told me that it cannot refinance the mortgage because I did not affirm the loan in the bankruptcy. It also told me that no bank will refinance the loan, for the same reason.

Should my lawyer have advised me to reaffirm the loan? Is there anything I can do? 

Shirley

 

Dear Shirley,

What Wells Fargo told you is partially right, and partially wrong. If the only issue is that you did not reaffirm the home loan in your bankruptcy, you will be able to refinance your loan with a different lender. Your lawyer was not remiss in advising you not to try to reaffirm the mortgage.

What Is Reaffirmation in Bankruptcy?

Most types of debts are wiped out in Chapter 7 bankruptcy. If you want to keep a particular debt, however, you can reaffirm it. Essentially you sign an agreement with the lender that waives the discharge of the debt. (Learn more about how reaffirmation works in bankruptcy.)

The effect of reaffirming a mortgage is that if you later default on the loan and the lender forecloses, you will be liable for a deficiency (the difference between what you owe and the value of your home). If you don’t reaffirm your mortgage in bankruptcy and later default, the lender cannot go after you for a deficiency. (Learn why reaffirming a mortgage is almost always a bad idea.)

Refinancing a Discharged Loan

If a debt is discharged in bankruptcy, the lender is prohibited from trying to  collect on that debt. The lender cannot sue you, call you, or send you a bill or mortgage statement.

When you refinance a discharged mortgage loan with the same lender who currently holds the mortgage, the proceeds of the refinance go back to that lender to repay the loan balance. This violates the bankruptcy discharge and that’s why Wells Fargo won’t refinance your mortgage. However, this  should not prevent other lenders from refinancing your mortgage.

It’s unfortunate that Wells Fargo was not able to explain the law correctly, or clearly.

Should You Have Reaffirmed Your Mortgage?

But should your lawyer have recommended or tried to get your mortgage reaffirmed? Most likely not.

In bankruptcy, a reaffirmation agreement must be approved by either

  • the bankruptcy judge, or
  • your bankruptcy lawyer.

Bankruptcy court approval. Most bankruptcy judges will not approve mortgage reaffirmations, reasoning that a debtor can keep the house without reaffirming as long as he or she makes timely payments. This makes the reaffirmation an unnecessary liability. Often the only reason in favor of reaffirming is to reestablish a good payment history. (Without a reaffirmation agreement, your future payments probably will not appear on your credit report.) Most bankruptcy judges feel that building future credit is not a sufficient reason to burden a debtor with mortgage liability.

Lawyer approval. If the judge won’t sign off on the reaffirmation, then it won’t be valid unless your lawyer signs a legal declaration stating that the reaffirmed debt will not impose an undue hardship on you or your dependents. Lawyers are very hesitant to sign such a document because they don’t know what their own responsibility will be if you default. Lawyers also reason that if judges won’t sign these agreements, then they shouldn’t either.

The end result: Mortgages are almost never reaffirmed in bankruptcy.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Can I Extend My Chapter 13 Bankruptcy Plan Beyond Five Years to Pay a Claim?

Leon Bayer PhotoASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I have been in Chapter 13 bankruptcy for five years and just made my last plan payment. But the trustee now says I have to pay an additional $8,000 before I am done with my bankruptcy and can get a discharge. The trustee has filed a motion to dismiss my case. 

I have talked to several bankruptcy lawyers, and they all agree that the trustee is correct – I do in fact have to pay the additional $8,000 into my Chapter 13 plan. 

I don’t have the money right now and my five year plan is over. I’m worried that if the trustee dismisses my case, the unpaid interest on my credit cards will become due. But I don’t have the money to make the $8,000 payment. 

Can I extend my case beyond the five years in order to spread this payment out over time?  I have a hearing next month on the trustee’s motion to dismiss. 

Sincerely,

Grace 

Dear Grace,

Unfortunately you are not allowed to extend your Chapter 13 payment plan beyond five years (60 months). (Learn more about the Chapter 13 bankruptcy plan and how long it can last.) If the trustee dismisses your case, you’ll owe the $8,000 plus interest on all the debt you paid through your plan over the past five years. This could be a lot of money.

Another Way Around the Five Year Plan Limit

But you might be able to get extra time to pay a different way. Hire a lawyer and have that lawyer file an opposition to the trustee’s motion to dismiss.

In the opposition, explain what happened, tell the court that you need six more months to pay off the $8,000, and ask the court to continue the hearing on this matter, giving you time to finish the job. After filing the motion, your lawyer should ask the Chapter 13 trustee if he or she will agree to continue the hearing. I think any decent trustee will agree, probably giving you a series of continuances over the next six months so you can pay as promised.

Why This Might Work

While you can’t officially modify your plan to extend it to 66 months, there is nothing in the law preventing the trustee from accepting your voluntary payments, even after your plan is over.

If the trustee will not agree, then make your argument to the judge. I think there is a good chance the judge will agree to the proposal if you have had a good Chapter 13 payment record up to now.

Good luck.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+