The United States Trustee’s Office in New York has uncovered a scam that has cost Chapter 13 debtors approximately $179 million in excessive fees from their mortgage lenders. It involves “double dipping” of escrow payments. Double dipping is when the mortgage lender charges the Chapter 13 debtor twice for the same escrow arrears.
Counsel for debtors or debtors themselves should carefully review of the claims filed by mortgage lenders or services in Chapter 13 cases to see if they are being charged twice for the same escrow arrears. Mortgage lenders must file an itemization of the arrears in their claim. The itemization will indicate the number of months in arrears, any accumulated late charges, attorneys’ fees incurred by the lender, escrow shortage, etc. The only time an escrow shortage should appear is if the mortgage arrears only includes principal and interest. If the mortgage arrears includes a portion for escrow there should be no itemization for escrow shortage. For example, if your mortgage consists of $1,500 in principal and interest and the escrow for property taxes and insurance is $500, if the lender claims that the debtor was four months behind in his payments pre-petition and uses the figure of $2,000 per month for a total of $8,000, then there should not be a separate itemization for escrow shortage of $2,000 as the escrow shortage was already calculated in the monthly itemization. Unfortunately, mortgage lenders and servicers have not been that careful in preparing the claims and are collecting double the amount actually owed by the debtor for escrow shortage.
There are even cases where the lenders are actually collecting triple the escrow arrears. This happens when the lender or servicer adjusts the debtor’s regular mortgage payments to cover the pre-petition escrow arrears as part of the debtor’s post-petition payments. In this case, the debtor and the Chapter 13 Trustee are both paying the lender for the escrow arrears.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, January 4, 2012
Tuesday, November 1, 2011
Severance Payments Received By A Debtor After Chapter 7 Is Filed Were Considered Part of Bankruptcy Estate
In the case of In re Jokiel, 447 B.R. 868 (Bankr. N.D. Ill. 2011), the debtor was employed when he filed his Chapter 7 case. A few months later he was notified that his employment would be terminated and that he would be receiving a severance payment from his former employer. The chapter 7 trustee filed a motion for the debtor to turn over the severance payments to the trustee, as the trustee considered the payment as part of his bankruptcy estate. The debtor responded that since he did not become entitled to the severance payment until after his case was filed, it was not part of the bankruptcy estate.
The bankruptcy court held that §541 of the Bankruptcy Code, which is the section that describes what constitutes property of the estate, should be interpreted very broadly. The court found that the severance payments were part of the debtor’s employment contract and was given to him as an incentive to sign the original employment contract. Accordingly, the court found that the severance was not for post-petition services performed by the debtor and was therefore part of his bankruptcy estate.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
The bankruptcy court held that §541 of the Bankruptcy Code, which is the section that describes what constitutes property of the estate, should be interpreted very broadly. The court found that the severance payments were part of the debtor’s employment contract and was given to him as an incentive to sign the original employment contract. Accordingly, the court found that the severance was not for post-petition services performed by the debtor and was therefore part of his bankruptcy estate.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Tuesday, September 20, 2011
New Laws in Maryland Tighten Requirements for Creditors to Obtain Judgments Against People
The Maryland Court of Appeals just amended certain rules to protect consumers from paying on debts to creditors who are not really entitled to any payments. The new law will require creditors to demonstrate that they own the debt, that the statute of limitations to collect the debt has not expired and that they are licensed to operate business in Maryland.
The changes to Rules 3-306, 3-308 and 3-509 of the Maryland Rules take effect January 1, 2012. If the creditor wants to obtain a judgment against a debtor and does not want to have to appear in court, it can file a request for judgment with an Affidavit.. Under the new laws, the person making the affidavit must have personal knowledge of the facts contained in the affidavit and must be competent to testify about the facts. In addition, the affidavit must be accompanied by detailed evidence of liability, specifically indicating the amount claimed, any interest with an interest worksheet, and proof that the attorney’s fees sought are reasonable, along with authenticated copies of the documents on which the claim is based.
If the complaint is being brought by a collection agency, then the agency must provide the following: (1) proof of existence of the debt; (2) proof of the terms and conditions of the debt; (3) proof of ownership; (4) identification of the nature of the debt; (5) proof of entitlement to damages under the contract in the case of a future services contract; (6) pertinent account charge off information (statue of limitations); (7) pertinent non-charge off account information; and (8) identifications of all Maryland collection agency licenses currently held by the creditor.
A person being sued in Maryland still needs to file a notice of intent to defend and needs to appear in court. If the creditor has not submitted all the evidence required by these new rules, the creditor will not be able to obtain a judgment against the debtor. If the person does not file a notice to defend or does not appear in court, the judge may consider whether the creditor fulfilled its requirements under the new law and may or may not enter judgment in the creditor’s favor.
These laws should help people avoid having to pay for debts that are beyond the statute of limitations to collect, or pay for debts to an agency not licensed to collect the debt in Maryland, or where the creditor has no documents to prove the existence of the debt.
By: Laura J. Margulies and Ruth Clayton
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
The changes to Rules 3-306, 3-308 and 3-509 of the Maryland Rules take effect January 1, 2012. If the creditor wants to obtain a judgment against a debtor and does not want to have to appear in court, it can file a request for judgment with an Affidavit.. Under the new laws, the person making the affidavit must have personal knowledge of the facts contained in the affidavit and must be competent to testify about the facts. In addition, the affidavit must be accompanied by detailed evidence of liability, specifically indicating the amount claimed, any interest with an interest worksheet, and proof that the attorney’s fees sought are reasonable, along with authenticated copies of the documents on which the claim is based.
If the complaint is being brought by a collection agency, then the agency must provide the following: (1) proof of existence of the debt; (2) proof of the terms and conditions of the debt; (3) proof of ownership; (4) identification of the nature of the debt; (5) proof of entitlement to damages under the contract in the case of a future services contract; (6) pertinent account charge off information (statue of limitations); (7) pertinent non-charge off account information; and (8) identifications of all Maryland collection agency licenses currently held by the creditor.
A person being sued in Maryland still needs to file a notice of intent to defend and needs to appear in court. If the creditor has not submitted all the evidence required by these new rules, the creditor will not be able to obtain a judgment against the debtor. If the person does not file a notice to defend or does not appear in court, the judge may consider whether the creditor fulfilled its requirements under the new law and may or may not enter judgment in the creditor’s favor.
These laws should help people avoid having to pay for debts that are beyond the statute of limitations to collect, or pay for debts to an agency not licensed to collect the debt in Maryland, or where the creditor has no documents to prove the existence of the debt.
By: Laura J. Margulies and Ruth Clayton
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Thursday, May 12, 2011
Can a Debtor Exempt an Inherited IRA?
A person who has an Individual Retirement Account (IRA) may designate a beneficiary to receive the balance in the account if the person dies before the account is depleted. If the person dies before the funds are depleted, the beneficiary is now the owner of the account. Under Maryland exemption laws, a debtor, filing bankruptcy may exempt all the funds in his or her own IRA. The question arises whether a person, other than a surviving spouse, who inherits an IRA may also exempt all the funds in the inherited IRA.
The surviving spouse has the right to transfer the IRA to his or her own name. This is commonly referred to as a “rollover distribution.” Once this is done, the spouse’s IRA is exempt under Mayland law.
A nonspousal beneficiary does not have this option. Instead, the nonspousal beneficiary must keep the account in the deceased name and must take distribution of all the funds within either 5 years, or if an election is made, over the beneficiary’s life time. Neither type of beneficiary may make an contributions to the IRA, but both may withdraw the funds in the account without penalty even if he or she has not reached retirement age.
Courts split on whether the nonspousal beneficiary may exempt the IRA in a bankruptcy case. In one case, In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010), the court allowed the exemption. While in the case of In re Chilton, 426 B.R. 612 (Bankr. E.D. Tex 2010), the court denied the exemption. However, in Maryland, the law specifically provides that:
“In addition to the exemptions provided..... any money or other assets
payable to a particiapant or beneficiary from, or any interest of any
participant or beneficiary in, a retirement plan qualfied under §401(a),
§403(a), §403(b), §408, .... of the United States Internal Revenue Code
...., shall be exempt from any and all claims of the creditors of the
beneficiary or participant...” (Emphasis supplied)
Accordingly, under Maryland exemption statute, the beneficiaries of an IRA, even a nonspousal beneficiary, should be able to exempt the IRA in their bankruptcy case.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
The surviving spouse has the right to transfer the IRA to his or her own name. This is commonly referred to as a “rollover distribution.” Once this is done, the spouse’s IRA is exempt under Mayland law.
A nonspousal beneficiary does not have this option. Instead, the nonspousal beneficiary must keep the account in the deceased name and must take distribution of all the funds within either 5 years, or if an election is made, over the beneficiary’s life time. Neither type of beneficiary may make an contributions to the IRA, but both may withdraw the funds in the account without penalty even if he or she has not reached retirement age.
Courts split on whether the nonspousal beneficiary may exempt the IRA in a bankruptcy case. In one case, In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010), the court allowed the exemption. While in the case of In re Chilton, 426 B.R. 612 (Bankr. E.D. Tex 2010), the court denied the exemption. However, in Maryland, the law specifically provides that:
“In addition to the exemptions provided..... any money or other assets
payable to a particiapant or beneficiary from, or any interest of any
participant or beneficiary in, a retirement plan qualfied under §401(a),
§403(a), §403(b), §408, .... of the United States Internal Revenue Code
...., shall be exempt from any and all claims of the creditors of the
beneficiary or participant...” (Emphasis supplied)
Accordingly, under Maryland exemption statute, the beneficiaries of an IRA, even a nonspousal beneficiary, should be able to exempt the IRA in their bankruptcy case.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Thursday, February 10, 2011
Debtor’s Obligations After Property Is Surrendered
When a debtor files for bankruptcy, he or she may want to surrender certain property that is subject to a lien back to the lender. For example, the debtor may want to surrender a car that is only worth $2,000 but has a lien of $10,000 back to the car lender. Another common example is when the debtor does not want to keep a house worth $100,000 that has mortgage liens that total more than $200,000. In a Chapter 7 case, the debtor indicates his or her intention to surrender in a separate form entitled “Statement of Intent.” In a Chapter 13 case, the debtor indicates his or her intention in the Chapter 13 Plan. The Chapter 13 trustee may also require that the debtor provide him or her with evidence of the surrender of the collateral.
Unfortunately, even after the lender is notified of the debtor’s intent to surrender the property, the lender in these circumstances is generally not obligated to repossess or foreclose on their collateral. The personal obligation of the debtor for the debt is discharged, but until the title changes or the car is repossessed, the debtor is still the owner of the property. In the case of a car, if the car is not picked up by the lender then as long as there are tags on the car, the debtor must keep the car insured. In the case of a house, the debtor should still maintain hazard insurance until the property is sold or at least until the date of a foreclosure sale. The debtor will also be required to maintain the property, such as cutting the grass, until it is sold. In addition, if the property is subject to condominium or homeowner association fees, after the filing of the bankruptcy case the debtor will need to pay these fees on a monthly basis until the property is sold.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Unfortunately, even after the lender is notified of the debtor’s intent to surrender the property, the lender in these circumstances is generally not obligated to repossess or foreclose on their collateral. The personal obligation of the debtor for the debt is discharged, but until the title changes or the car is repossessed, the debtor is still the owner of the property. In the case of a car, if the car is not picked up by the lender then as long as there are tags on the car, the debtor must keep the car insured. In the case of a house, the debtor should still maintain hazard insurance until the property is sold or at least until the date of a foreclosure sale. The debtor will also be required to maintain the property, such as cutting the grass, until it is sold. In addition, if the property is subject to condominium or homeowner association fees, after the filing of the bankruptcy case the debtor will need to pay these fees on a monthly basis until the property is sold.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, December 15, 2010
Condominium and Homeowners Association Fees in Bankruptcy
Many of my clients who own a condominium, or live in a neighborhood that is subject to a homeowners association, are surprised to learn that after they file bankruptcy they still have an obligation to pay fees to the condominium or homeowners association. Filing bankruptcy will discharge the condominium or homeowners association fees or dues that had accrued before the case was filed, but will not discharge the obligation that becomes due after they file. This is due to an exception in the Bankruptcy Code Section 523(a)(16) which provides that a discharge will not include fees or assessments that become due and payable after the case is filed. The debtor will continue to be liable for these fees after the filing of the bankruptcy case until the debtor no longer has any legal interest in the property.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wednesday, November 10, 2010
ISSUES REGARDING FUNDS IN A BANK ACCOUNT PRIOR TO FILING BANKRUPTCY
Under the 1995 Strumpf decision, (Citizen Bank of Maryland v. Strumpft, 516 U.S. 16) the Supreme Court ruled that a bank may freeze any money that is in a debtor’s account at the time it learns of the debtor’s bankruptcy case, if the debtor owes the bank money. This would result in the debtor not having access to those funds. The bank may then file a motion with the bankruptcy court for permission to sefoff the funds in the account with the amount the debtor owes the bank. The Supreme Court held that this freeze did not violate the automatic stay provisions of the Bankruptcy Code, which normally prohibit creditors from taking any actions to collect its debt. As a result of this ruling, I have always advised my clients to remove any funds they have in a bank before filing the case if they owe the bank money.
Wells Fargo Bank took this one step further. It believed it had the right to freeze money in a debtor’s bank account even if the debtor does not owe it money. In re Mwangi, 432 B.R. 812 (9th Cir. B.A.P. 2010); Calvin v. Wells Fargo Bank NA, 329 B.R. 589 (2005). Its national policy provided that if the debtor had more than $5,000 in an account with Wells Fargo, it would put an administrative hold on the account once it found out about the debtor’s bankruptcy. It would then send the debtor a letter notifying him or her about the freeze. Another letter would be sent to the trustee appointed in the case notifying the trustee about the account and asking the trustee what it should do with the frozen funds. Even if the debtor had exempted the funds on his bankruptcy schedules, he would have no access to the funds until the trustee to informed Wells Fargo to release the funds. This could result in a wait of more than 30 days. The Mwangi decision will hopefully put an end to this practice. The 9th Circuit ruled that because the bank was not attempting to protect setoff rights, the “exception” to turnover of funds in a deposit account recognized by the Supreme Court in Strumpf did not apply in this case. The funds in the debtor’s accounts, even those claimed as exempt, were property of the estate and therefore the debtors had standing to pursue sanctions for bank's stay violation. Finally it held that by placing a hold on the account funds, the bank exercised control over property of the estate in violation of the automatic stay.
Now that Wells Fargo has acquired Wachovia, more people would have been subject to this freeze. Until it is clear that Wells Fargo will no longer put their account holders’ funds on hold upon learning of their bankruptcy cases, I would advise potential bankruptcy clients not to leave funds in their Wells Fargo account.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
Wells Fargo Bank took this one step further. It believed it had the right to freeze money in a debtor’s bank account even if the debtor does not owe it money. In re Mwangi, 432 B.R. 812 (9th Cir. B.A.P. 2010); Calvin v. Wells Fargo Bank NA, 329 B.R. 589 (2005). Its national policy provided that if the debtor had more than $5,000 in an account with Wells Fargo, it would put an administrative hold on the account once it found out about the debtor’s bankruptcy. It would then send the debtor a letter notifying him or her about the freeze. Another letter would be sent to the trustee appointed in the case notifying the trustee about the account and asking the trustee what it should do with the frozen funds. Even if the debtor had exempted the funds on his bankruptcy schedules, he would have no access to the funds until the trustee to informed Wells Fargo to release the funds. This could result in a wait of more than 30 days. The Mwangi decision will hopefully put an end to this practice. The 9th Circuit ruled that because the bank was not attempting to protect setoff rights, the “exception” to turnover of funds in a deposit account recognized by the Supreme Court in Strumpf did not apply in this case. The funds in the debtor’s accounts, even those claimed as exempt, were property of the estate and therefore the debtors had standing to pursue sanctions for bank's stay violation. Finally it held that by placing a hold on the account funds, the bank exercised control over property of the estate in violation of the automatic stay.
Now that Wells Fargo has acquired Wachovia, more people would have been subject to this freeze. Until it is clear that Wells Fargo will no longer put their account holders’ funds on hold upon learning of their bankruptcy cases, I would advise potential bankruptcy clients not to leave funds in their Wells Fargo account.
Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.
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