The American Airlines bankruptcy case has become a primary example of how bankruptcy laws can sometimes clash with other federal laws. The Department of Justice has filed an antitrust violation against the airline giant at the same time the corporation wants their chapter 11 bankruptcy reorganization plan confirmed. There is a lot at stake for both sides of the argument. Continue reading
One of the leading causes of having to file for bankruptcy protection is the loss of income within your family. If you cannot replace the income, you often realize it doesn’t take long in getting way behind on your bills. In looking for a new job, many today are finding out what they have been qualified to do is no longer available where they currently reside, so they are moving out of state in order find work that they are qualified to do. How does moving out of state affect bankruptcy law? Continue reading
Ever since the founding of this great nation, bankruptcy laws have been forever evolving. If you are filing for bankruptcy protection in 2013 while living in Texas, you will find out that Texas bankruptcy laws have evolved also. Continue reading
A blogging Texas debtor recently searched a bankruptcy forum website to see if Texas homestead exemption law would protect surviving children from a creditor wanting to satisfy their claim by filing a lawsuit.
Personal Bankruptcy Story
The blogging debtor wrote: “I have been sued in Texas on a credit card debt, but reside in California most of the time while taking care of a relative. I have no assets, savings or job. All I have is a joint ownership with my brother in a home I live at in Texas, which on average is 2 to 3 months out of the year. There is no mortgage on it and my brother doesn’t use it. When I am not living there, it is vacant. I pay the property taxes on it every year and keep the utilities on, which I have been doing so for roughly 10 years. Other than a partial ownership in the house in Texas and a bank account with $100 dollars, I don’t own anything in Texas. My driver’s license is from California but can’t afford a car. At 60 it’s been hard to find work.”
The Texas debtor was seeking to know if her home in Texas could be protected, whether or not she could file bankruptcy in California and claim Texas homestead exemptions, or should she move back to Texas for 90 days to re-establish her residence.
Texas Exemption Law
Concerning law related to homestead exemption in Texas, two things must be established before your residence is considered a homestead. You must show intent to use the land as a residence and overt acts must occur that are consistent with usage of the land as a home.
Property in Texas having been designated as a homestead will only lose that character through abandonment, death, or transfer. A temporary absence from the home will not end homestead protection as long as the current owner has not established a homestead somewhere else. To prove a home has been abandoned, a plaintiff would have to prove with undeniable clarity that there has been an abandonment with intention not to return.
The blogger in question has lived on the land, paid ongoing property taxes, and paid utilities ever since inheriting the estate. Since the blogger has indicated she owns no other property or homestead elsewhere, it is possible she has the law on her side concerning Texas homestead exemption as well. Exemption law comes into play in determining protection against any creditors trying to seize a Texas homestead.
Texas Inheritance Law
According to inheritance law in Texas, “A survivor’s homestead entitles the surviving spouse to occupy or use the homestead for life or for so long as the surviving spouse chooses to do so.” Stipulations on this law are that the surviving spouse must continue reside in the homestead. Surviving minor children are also protected in the same degree.
The blogger must file bankruptcy in the state in which she resides, and federal bankruptcy law stipulates which state exemptions she uses. The blogger might make a good case for residing either in Texas or California. She might also make a good case for using Texas homestead exemptions in her case. Because of the legal complications, she needs to consult with an experienced bankruptcy lawyer to help her decide her course of venture.
- Exemption in a Bankruptcy Can be Productively Listed (betterbankruptcy.com)
- New Homestead Exemption Law in Effect (suzyechols.wordpress.com)
- Texas Homestead Exemption (popiwinters.wordpress.com)
- Texas, the Largest State with Lowest Per Capita Bankruptcies (betterbankruptcy.com)
By Mike Hinshaw
In the preceding two installments, we looked at a rarely used provision of the U.S. bankruptcy code known as Chapter 9, which is unlike the two most commonly used types of personal (or “consumer”) bankruptcy protection, Chapters 7 and 13. The latter are designed to allow individuals the chance at a fresh start while minimizing damage to society.
Chapter 9 can be risky for the cities that use it, including city workers, various kinds of investors and municipal bond holders.
Professor fuels debate with proposal for ‘Chapter 8’
Despite those risks, assorted pundits and industry professionals have recently been discussing one law professor’s contention that creating a new provision in the bankruptcy code–suggested as Chapter 8–would allow states to declare bankruptcy and thereby avert another financial crisis.
Published in The Weekly Standard in November, law professor David Skeel says: “Anyone who proposed even a decade ago that a state should be permitted to file for bankruptcy would have been dismissed as crazy. But times have changed. As Arnold Schwarzenegger’s plea for $7 billion of federal assistance for California earlier this year made clear, the states are the next frontier in ‘too big to fail.’ In the topsy-turvy world we now inhabit, letting states file for bankruptcy to shed some of their obligations could save American taxpayers a great deal of money.”
States facing interest on federal loans
And make no mistake–despite any yarns coming off various gubernatorial spinning wheels, simply servicing the interest on federal loans is a big problem for many states.
As reported in a Jan. 15 piece in The New York Times:
As if states did not have enough on their plates getting their shaky finances in order, a new bill is coming due — from the federal government, which will charge them $1.3 billion in interest this fall on the billions they have borrowed from Washington to pay unemployment benefits during the downturn.
The interest cost, which has been looming in plain sight without attracting much attention, represents only a sliver of the huge deficits most states will have to grapple with this year. But it comes as states are already cutting services, laying off employees and raising taxes. And it heralds a larger reckoning that many states will have to face before long: what to do about the $41 billion they have borrowed from the federal government to help them pay benefits to millions of unemployed people, a debt that federal officials say could rise to $80 billion.
Certainly, most states are in trouble. In a Dec. 30 follow-up to her earlier series at CNBC called “States of Pain,” Nicole Lapin writes, “We’ve all seen the deficit numbers. Twenty-five billion for California. Fifteen billion for Illinois. Ten billion dollars for New Jersey.
“Meredith Whitney says we will all feel the states’ pain in the spring when federal stimulus money dries up.”
Have warnings been ingnored?
To be sure, some states were warned. A Jan. 16 article from the Austin bureau of the Houston Chronicle is headlined “Strayhorn finds vindication, but no joy, in shortfall,” pointing out in the subhed that the perennially re-elected Gov. “Perry rejected ex-comptroller’s budget warning in 2006”:
Comptroller Carole Keeton Strayhorn did not win friends five years ago when she warned Gov. Rick Perry and state lawmakers they were writing the “largest hot check in Texas history” during a tax overhaul that resulted in lower property taxes and a revised business tax.
Strayhorn told them their plan would fall about $23 billion short over a five-year period.
Now, five years later, state leaders are staring at an estimated budget shortfall of nearly $27 billion over the next two years.
According to this Fort Worth Star-Telegram editorial and this piece in D magazine, the vagaries of the state budget process don’t allow us to pinpoint the precise number: the deficit may be about $15 billion, or it may really be closer to $15 billion–depending on what actually gets counted. That’s because, says D, “the Comptroller only estimates revenue. She cannot estimate what the Legislature will spend. (And she is probably a little gunshy on the revenue, since she overestimated by $4.2 billion for the current budget; her $15 billion shortfall may only be $13 billion.)
“The problem on the expense side is growth. One example, as cited by Senator Carona, is the increase in schoolchildren. Texas grew at roughly 2 percent a year during the last decade. Using the same rate of growth, we will have added some added some 2,300,000 new Texans by 2013. That’s more people requiring state services like the DMV, etc. Cut state agencies by 7 percent, as the governor has done, and you’ve effectively cut by 14 percent because not only are you serving few people but you’re also not serving all the new people either. In other words, Texas is far from keeping up with its growth.”
‘Almost every state’ in trouble
Rest assured: the same type of debate is going on in state legislatures from sea to shining sea. Despite the back-and-forth over actual figures, the bottom line is summarized in a Jan. 16 editorial in The New York Times: “Almost every state is in deep fiscal trouble this year, but only a few others have admitted that cutting spending will not be enough.”
In a Dec. 7 opinion blog for Reuters, Felix Salmon addresses the possible backlash of creating a Chapter 8 for state bankruptcies, in direct opposition to Professor Skeel:
Skeel doesn’t mention the single biggest problem with this idea. If it were implemented, or if it even looked like it might get implemented, prices of municipal bonds would plunge, and most states would find it pretty much impossible to borrow money. As such, facing a massive and immediate liquidity crisis, they would be in more need of a federal bailout than before the bankruptcy legislation was seriously mooted.
The fact is that there’s only one reason to invent a Chapter 8 bankruptcy provision for states—and that’s to come up with an efficient and legal way to impose losses on bondholders and other creditors. (Chapter 9, which applies to cities and other municipal entities, doesn’t apply to states.) The creditors, fully aware of this, would immediately cease lending, certainly to the rockier states like California, Illinois, and New York. That’s not what we want. As a result, unless or until those states can bring their budgets into a primary surplus, introducing such a provision would certainly do more harm than good. And if those states can bring their budgets into a primary surplus, then we don’t need the bankruptcy provision, since they’ll be easily capable of rolling over their debts.
However, even Salmon concedes the Skeel’s idea does “make a certain brutal sense.”
Regardless of the merits of Chapters 7 and 13 for consumers, and Chapter 11 for business reorgs–and beyond what the average American thinks–Chapter 8 may well be one of those ideas whose time has come.
For bankruptcy basics, please see:
by Mike Hinshaw
As the rate of consumer bankruptcies continue to rise, it’s important to remember that once you’ve done your due diligence in “shopping” for an experienced, trained attorney and chosen one you feel comfortable with, then by all means heed the attorney’s counsel–and don’t try to scam the system.
This Oct. 25 article from the Milwaukee Journal Sentinel reminds us that unemployment, foreclosure and bankruptcy rates are not uniform across the country. Moreover, these problems are extending deeper into various strata of the once gainfully employed:
Bankruptcy filings in [Wisconsin] rose 11.5% through the first nine months of 2010 compared with the same period in 2009.
There were 23,397 bankruptcy filings in Wisconsin through Sept. 30, an increase from 20,982 at the first three quarters of 2009, according to U.S. Bankruptcy Court records.
Attorneys who handle bankruptcy cases said they are seeing more small-business owners and self-employed workers – landscapers, plumbers, flooring contractors, for example – who haven’t been able to generate enough work to keep up with their personal, family and business bills in the slow economy. Calls from general contractors and builders in need of their skills aren’t coming because of the drop-off in residential and commercial construction.
More, younger tradesmen
The article mentions a local bankruptcy attorney who says her firm is seeing more and more “tradesmen in their 30s and 40s who have families.”
” ‘They are trying to keep making payments on the house and paying for all the kids’ stuff, and those guys usually don’t have retirement accounts they can draw on and they don’t have great health insurance,’ said Resop, of the Madison office of law firm von Briesen & Roper.”
Another bankruptcy attorney added details about increasingly affected workers, including drywallers, auto mechanics, workers in flooring stores and restaurants: “You name it, we’ve seen them all,” said Robert Waud, of Todd C. Esser & Associates.
Credit cards seldom a bailout
A common trait seems to be that of, perhaps reluctantly, falling back on credit cards to help keep the business afloat. In a ravaged economy, that works only so long before the lack of new work forces them to seek bankruptcy protection.
Variation among regions
Although Wisconsin’s numbers mirror nationwide data, an example of the differences among regions can be seen between the rates in South Florida and South-Central Texas.
This Oct. 4 story from the South Florida Sun-Sentinel says, “The number of South Florida residents filing for personal bankruptcy in September fell 1.6 percent, from 3,387 to 3,332, August to September, according to the U.S. Bankruptcy Court in Miami.”
(However, a caveat: This personal finance feature at the Sun-Sentinel also says that of readers participating in a personal-finance online event, “25 percent said they are considering cashing out a retirement plan to pay a debt or filing for bankruptcy.”)
Filings in South-Central Texas were up in marked distinction to Florida and Wisconsin; somewhat surprising, though, Chapter 7 filings were down. According to an Oct.1 post at MySanAntonio.com:
Filings for personal bankruptcy reorganization surged almost 35 percent last month in South-Central Texas from a year ago.
The U.S. Bankruptcy Court for the Western District of Texas in San Antonio reported 280 Chapter 13 cases last month, up from 208 in September 2009 and 222 in August.
Overall, there were 453 bankruptcy filings in September, an increase of 12 percent from a year ago when there were 403 cases. In August, 440 cases were recorded.
Chapter 7 liquidation cases fell to 164 in September from 189 a year ago and 211 in August. All but two of the Chapter 7 filings last month were personal bankruptcies.
Nationwide, says an Oct. 4 Wall Street Journal blog, “The number of consumer bankruptcy filings so far this year is 11.3% higher than the same time in 2009, the American Bankruptcy Institute, an organization . . . [comprising] attorneys, accountants and other bankruptcy professionals, said Monday. Filings for the first three-quarters of the year are the highest since 2005, when the bankruptcy system was overhauled to make it more difficult for consumers to shed their debts.”
The blog also reports: “The Bankruptcy Institute’s tallies are based on data from the National Bankruptcy Research Center. Government totals tend to lag by a couple months.”
So even though the Great Recession is officially over, more than one million U.S. consumers has chosen to file for the protection bankruptcy affords, despite the social stigma that used to be attached. But as mentioned at the outset, anyone who tries to scam the system does so at their peril.
Lies catch up with man who hid Jeep, homes
One recent example comes from New Mexico: “An Albuquerque man who hid $54,000 in assets as he went through personal bankruptcy was sentenced to jail and restitution Thursday.
“Csaba Percifull, 28, failed to report ownership of two rental homes in southwest Albuquerque, a Jeep Liberty and two water-purification systems when he filed for bankruptcy in 2005, according to federal prosecutors. Instead he deeded the homes to a former girlfriend getting one of them back after he was discharged from bankruptcy early in 2006.”
Percifull’s punishment? Not only 30 days in jail followed by three months’ monitored house arrest but also $17,000 in restitution. All for a car and a couple of water filters.
Former NHL owner busted
Another case shows that seniors and celebrities are no more immune than younger malefactors: Percifull is 28 while Peter Pocklington is 68. However, some history of societal benevolence might help, as in the case of the man hockey fans will recognize as the former owner of a storied Canadian club perhaps best known not for its number of Stanley Cups but for trading away Wayne Gretzky.
This from the Lexington Herald-Leader on Oct. 27: “Former Edmonton Oilers owner Peter Pocklington was sentenced Wednesday to six months of home detention for making false statements in his Southern California bankruptcy case.