Gillman & Gillman | Experienced New Jersey Bankruptcy Lawyers » Bankruptcy Cases in New Jersey

Fifth Circuit Allows Deduction for Transportation Ownership for Debtor with No Loan Payment

Justin Gillman — Wed, 24 Jun 2009 18:14:13 +0000

A continuing issue in consumer bankruptcy cases in Chapter 7, 11 and 13, is the manner in which automobile expenses are treated in the calculation of “current monthly income”. As with many aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), practitioners and Courts have struggled with the question of determining the treatment of automobile expenses under the Code. This is a particularly important issue in some cases in which the deduction is crucial to determining whether a debtor can file a Chapter 7 Bankruptcy case without the “presumption of abuse”.

On June 10, 2009, the Fifth Circuit Court of Appeals ruled that a Chapter 7 Debtor could claim the deduction and expense for transportation even if the Debtor used vehicles which were not subject to loans or leases. See Opinion at http://www.ca5.uscourts.gov/opinions%5Cpub%5C08/08-60953-CV0.wpd.pdf

The Fifth Circuit noted the two basic approaches courts have followed: (1) the “plain language approach”, which allows the vehicle ownership deduction even if the debtors have no monthly payment associated with the vehicle, and (2) the “IRM approach,” which does not. Adopting the “plain language” approach, the Court followed the lead and opinion of the Seventh Circuit on this issue. See Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. 2008).

The Fifth and Seventh Circuits are the only two Circuit Courts to rule on this issue. At the present time, there is no opinion in the Third Circuit which addresses this issue for bankruptcy cases in New Jersey.

Where is a Bankruptcy Case filed in New Jersey?

Justin Gillman — Fri, 19 Jun 2009 12:38:49 +0000

A common question we get is “where will my case be filed”? Bankruptcy cases arise from the Federal Bankruptcy Code and therefore are heard and prosecuted in Federal Courts. In legal terms, this is called “jurisdiction”.

“Venue” is the legally proper place where a particular case should be filed or heard. The Federal Code provides that a Bankruptcy Case (or as it states in the Code, “a case under Title 11″), under any of the Chapters, may be commenced in the district “in which the domicile, residence, principal place of business in the United States, or principal assets in the United States” of the individual or corporate debtor has been located during the 180 days immediately proceeding the bankruptcy filing. There are other provisions in the Federal Code that give a debtor latitude in certain circumstances to file a case in other locations, if, for example, a new case is to be filed by an affiliate of a corporate debtor who has already filed in a particular district.

Cases which are filed in New Jersey, are filed in the venue of the U.S. Bankruptcy Court for the District of New Jersey. The New Jersey Bankruptcy Courts are is divided into three (3) units or vicinages. These vicinages are located in the federal courthouses in Newark, Trenton, and Camden.

New Jersey Local Bankruptcy Rules govern the assignment of cases. Although a debtor has a right to file a bankruptcy case in any of these vicinages, the Court can transfer a case if it finds that the matter is more properly heard in another vicinage. Generally though, the assignment of a case is based on the county in which the debtor resides (if the debtor is an individual or married couple) or the address where a corporate debtor has its principal place of business in New Jersey. The Local Rules divide the assignment of cases as follows:

1. The Newark vicinage consists of Bergen, Essex, Hudson, Morris, Passaic, Sussex and Union Counties.

2. The Trenton vicinage consists of part of Burlington (except for the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset and Warren counties.

3. The Camden vicinage consists of Atlantic, part of Burlington (the townships of Cinnaminson, Delran, Edgewater Park, Evesham (Marlton), Maple Shade, Moorestown, Mount Laurel, Palmyra, Riverside and Riverton), Camden, Cape May, Cumberland, Gloucester and Salem counties.

Over the years, the Courts in the District have changed the assignment of cases by modifying the Local Rules.

Thus, even in what would appear to be a simple matter as the location of the filing of a bankruptcy petition, an individual, married couple, or corporation, should review the location (venue and assignment) of a potential bankruptcy filing with an attorney experienced in these matters. This blog and site provide information about the law designed to help users educate themselves about their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.

Checklist: Tax Planning for Individuals filing Chapter 7, Chapter 13, or Chapter 11 Bankruptcy

Justin Gillman — Wed, 17 Jun 2009 14:17:32 +0000

The following is a short checklist of Tax Planning and Practice Strategies which may be followed by an attorney for an Individual considering the filing of a Chapter 7, Chapter 13, or Chapter 11 Bankruptcy.

1. Whether to File a Bankruptcy Case?

The first question to be reviewed is whether a bankruptcy filing of any kind is best for the individual. (Note: When discussing individuals, this is meant to include one person or a married couple filing a joint bankruptcy case.). Issues such as the treatment of outstanding taxes in the case, whether an individual is able to repay the necessary amounts through the case, and whether the cost associated with the case is worth the benefit to be received. For example, if an individual is unable to payoff a tax obligation in a Chapter 13 bankruptcy case in the required time, they may be better served with an Offer in Compromise with the IRS.

2. When to File?

The timing of the filing of a Bankruptcy Petition can be crucial in tax issues. One of many examples is the ability of a bankruptcy debtor to discharge certain unsecured taxes. Unsecured income taxes that were first due more than three (3) years before the bankruptcy case was filed, for which a timely and non-fraudulent return was filed, can be discharged in full in any chapter of bankruptcy. Therefore, before filing such a case, the individual and attorney should review whether the return was timely filed and whether the tax has been “due and owing” for more than three years.

3. Where to File?

Although it is rare for individuals to have choices in New Jersey as to where their case is filed, in some limited examples, individuals may have the ability to file in more than one jurisdiction and should review the relative benefits of filing in each venue.

4. Which Chapter of the Bankruptcy Code Under Which to File?

This is often the most important decision for individuals and often involves reviewing all of the financial circumstances, past, present, and future, with counsel.

5. What must be accomplished before filing a Bankruptcy Case?

Since the bankruptcy code generally requires that tax returns which are due be filed prior to the filing of the Petition, individuals should review their past tax filings and confirm that all returns are filed. If returns remain due, there should be immediate planning to have the returns filed as soon as possible.

This blog and site provide information about the law designed to help users educate themselves about their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.

Update and Comment: New Jersey Foreclosure Mediation and Bankruptcy

Justin Gillman — Tue, 16 Jun 2009 22:05:44 +0000

Yesterday, we posted information on the press release issued by the New Jersey Bankruptcy Court regarding the New Jersey Foreclosure Mediation Program and Bankruptcy Debtors which was posted online at http://www.njb.uscourts.gov/notice/2009_02_04_foreclosure.pdf. In that post, there was reference to a General Order of the United States Bankruptcy Court District of New Jersey regarding Negotiations between Debtor(s) and Mortgage Servicers to Consider Loan Modifications. The post failed to include the link to the General Order of the Court. See http://www.njb.uscourts.gov/notice/2009_05_20_JHW-GenOrder_Re_Loan_Modification-05-19-09_signed.pdf

By way of comment, there are many practical problem that currently exist in Debtors efforts to engage in such discussions with their mortgage companies or servicers. First, despite this General Order, many servicers continue to advise bankruptcy debtors that loan modification is not available while they are “in bankruptcy”. As is clear by the information provided by the New Jersey Foreclosure Mediation Program and that of the New Jersey Bankruptcy Court, this is not accurate. As there is no forum in Bankruptcy Court to address this issue, Debtors are forced to submit to the New Jersey Foreclosure Mediation Program and still proceed with their bankruptcy case. This causes confusion for both the homeowner and the mortgage servicer.

Although there are many other practical problems, another major issue is the inability of homeowners to point to any clear standard of whether they “qualify” for a modification. President Obama has announced a program which contains details regarding whether a homeowner may qualify for modification. See http://www.whitehouse.gov/blog/09/02/18/help-for-homeowners/. However, what is a New Jersey homeowner to do if they feel they qualify based on all of the stated guidelines and their lender refuses to propose or accept a modification? These are the questions which give New Jersey homeowners facing foreclosure and bankruptcy the most difficulty and those which are currently not addressed in either state or federal law.

Under any circumstances, we continue to advise our clients to attempt to obtain modifications and to consult with their attorney prior to and during this process. In some cases, a Chapter 7 bankruptcy case may be filed to address the unsecured credit card debt of a homeowner and reduce their “debt-to-income ratio”. However, in all cases, debtors should consult with experienced counsel regarding the particular circumstances of their case.

Chapter 7 and 13 Consumer Bankruptcy and Tax Returns

Justin Gillman — Fri, 12 Jun 2009 12:27:40 +0000

When the Bankruptcy Code was changed in 2005, significant changes were made to the tax return filing requirements for Chapter 7 and Chapter 13 consumer bankruptcy debtors. The changes increased the need for a Debtor and their counsel to review tax filing information before filing a Chapter 7 or Chapter 13 consumer bankruptcy case.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (which applies to bankruptcy cases filed after October 17, 2005) requires that the debtor file tax returns or transcripts with the Court. See 11 U.S.C §521 et seq. In New Jersey Bankruptcy cases, Local Rules permit this requirement to be met by forwarding the last filed tax return or the tax transcript to the Trustee in the Chapter 7 or Chapter 13 case. This must be done at least seven (7) days prior to the first date of the meeting of creditors.

In Chapter 13 bankruptcy cases in New Jersey, a particular issue arises ”for any return that is not past due as of the date of the filing of the Petition”. For example, if a Debtor files a Chapter 13 Bankruptcy Case in New Jersey on April 1, 2009, the tax returns for the tax year 2008 are not “past due” until April 15, 2009. Due to the nature of the case and the need to fix the amount of claims in the case, it is difficult to confirm the Chapter 13 Plan without the return being filed. If that same Debtor has filed a timely extension of the duty to file the return (automatically fixed at six months, see http://www.irs.gov/newsroom/article/0,,id=108542,00.html), what is to be done with the unfiled return?

11 USC §1308 requires that “if the debtor was required to file a tax return under applicable non Bankruptcy law, the debtor shall file with the appropriate tax authorities all tax returns for all taxable periods ending during the four (4) year period ending on the date of the filing of the Petition.” Subsection (b)(1)(B) provides that “for any return that is not past due as of the date of the filing of the Petition, the later of (i) the date that is 120 days of that meeting; or (ii) the date on which the return is due under the last automatic extension of time for filing that return to which the debtor is entitled and for which request is timely made in accordance with applicable non Bankruptcy law.” There is a procedure built into subparagraph (B)(2) which provides that after notice and hearing, the Court can enter an Order before the tolling of any applicable filing. If the debtor demonstrates by a preponderance of evidence that the failure to file a return as required by this subsection is attributal to circumstances beyond the control of the debtor, the Court may extend the time to file the return for either thirty (30) days or “a period not to extend after the applicable extended due date for a return described in subparagraph (2).”

Important is the use of the word “may” in this provision. The Code gives the Court discretion to extend the time. Ultimately, the decision of whether the Debtor in a Chapter 13 case should be granted time to file the return is given to the bankruptcy judge.

In a recent case, a Debtor I was representing in a Chapter 13 bankruptcy case in New Jersey had filed a timely extension but was faced with the Chapter 13 Trustee’s request that the case be dismissed for failure to file the 2008 tax return. Although we were able to argue that the case should not be dismissed, the Court fixed a date before October 15, 2009, for the return to be filed.

This is an example of how the provisions of the bankruptcy code as it applies to Chapter 13 debtors in New Jersey are often complicated and should not be reviewed without the advice and counsel of an experienced bankruptcy attorney.