Tag: exemptions

W.D.N.C.: Cooper v. Crow- Procedures for Amendment to Exemptions Governed by State Law

Summary:

Ms. Crow filed a Chapter 13 bankruptcy, but after a creditor raised issue with her exceeding the §109(g) debt limits, converted to Chapter 7. Eight months after the initial filing of her voluntary bankruptcy petition, Ms. Crow sought to amend her schedules to claim an exemption in an individual retirement account (IRA) that had been omitted from her original petition, but would otherwise indisputably have been exempt. The Trustee opposed this amendment, arguing that Ms. Crow failed to show the change in circumstances required for modifications of exemptions by N.C.G.S. § 1C-1603(g). The bankruptcy court found that the omission was inadvertent due to the complexity of the case (which involved Ms.… Read More

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Bankr. M.D.N.C.: In re Nevils- Exempt Worker’s Compensation Award is not Disposable Income

Summary:

After the filing of a Chapter 13 bankruptcy, Mr. Nevils received a lump-sum Worker’s Compensation award of $235,000. Over the Trustee’s objection, the bankruptcy court previously allowed Mr. Nevils’ exemption of the proceeds, without ruling at that time on whether such constituted disposable income. The Trustee, supported by the Bankruptcy Administrator, then brought a motion to modify, arguing that even though exempt, the award constituted a substantial and unanticipated change in circumstances and should be considered in calculating Mr. Nevils’ disposable income.

The bankruptcy court rejected this argument, finding that 11 U.S.C. § 522(c) provides “property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen before the commencement of the case….” Relying on Judge Doub’s opinion from In re Daniels, the bankruptcy court held that “[t]he clear language of [§ 522(c)] protects exempt property, regardless of form, from prepetition debts…[t]his express limitation cannot be ignored for purposes of defining disposable income under [§ 1325(b)]”).… Read More

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Bankr. W.D.N.C.: In re Crawford- Definition of Dependent for Exemptions

Summary:

The Debtor’s great uncle Jennings had, in his waning years, received care and assistance from the Debtor and transferred his Rock Hill, S.C. home to her. When she filed bankruptcy, the Debtor asserted that Jennings was her dependent and claimed the property as exempt under N.C.G.S. § 1C-1601(a)(1). Less than three months after her bankruptcy was filed, Jennings died.

Sustaining the Trustee’s objection to the Debtor’s claimed homestead exemption, the bankruptcy court held that while the Debtor had provided sporadic assistance with paying his bills, “what she gave to Jennings was not financial support, but rather, care.” Relying on In re Preston.… Read More

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Form: Best Interests of the Creditors Calculator

11 U.S.C. § 1325(a)(4), often called the “Best Interests of the Creditors” or the “Liquidation” test, requires that:

the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;

As such, Chapter 13 Debtors must pay unsecured creditors at least as much as those creditors would get in a Chapter 7 liquidation. But it is important to keep in mind that a Chapter 7 liquidation is not without costs- the Chapter 7 Trustee will receive a strictly calculated commission pursuant to 11 U.S.C.… Read More

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Law Review: Ponoroff, Lawrence – Constitutional Limitations on State-Enacted Bankruptcy Exemption Legislation and the Long Overdue Case for Uniformity

Abstract: 

The division of responsibility between state and federal authorities in bankruptcy is complex. The U.S. Constitution cedes the power to pass bankruptcy laws to the federal government. For political reasons, however, since 1867 the federal bankruptcy law has deferred to one degree or another to the states with respect to the designation of property exempt from administration in a bankruptcy case. The constitutionality of this practice under the uniformity requirement in the Bankruptcy Clause of the Constitution has been settled since 1902. More recently, however, considerable disagreement has arisen in the case law over whether this deference extends to exemptions enacted by a state that apply solely in bankruptcy.… Read More

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Bankr. E.D.N.C.: Crampton v. Kohler- Conversion of Non-exempt funds into an Exempt IRA was not a Fraudulent Conveyance

Summary:

After consulting with a bankruptcy attorney, the Debtors sold personal property at auction, receiving $14,000 in proceeds. Two days before filing Chapter 7, the Debtors used $12,000 to fund IRAs and the remainder for insurance and vehicle repairs. The Trustee sought to avoid the contributions to the IRAs as fraudulent conveyances.

Following, Ford v. Poston, 773 F.2d 52, 54 (4th Cir. 1985), the “[m]ere conversion of property from
non-exempt to exempt on the eve of bankruptcy-even though the purpose is to shield the asset from creditors-is not enough to show fraud.” The Trustee argued that converting non-exempt property to an IRA is fraudulent unless it is done for the purpose of contributing to the debtor’s overall retirement plan.… Read More

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Bankr. E.D.N.C.: In re Young- No Exemption by Slayer

Summary:

Debtor was first found by a civil court to be the slayer of Michelle Young, his wife.  He later filed a Chapter 7 bankruptcy, claiming 401k accounts as exempt.  While the bankruptcy was pending, he was convicted of the first degree murder of Ms.  Young.

First the Court found that the Debtor was, pursuant to N.C.G.S. § 31A-3 (3)(a) and (b), as slayer to both the civil adjudication and the criminal conviction.  As such, he did own the 401k accounts as “[n]o person should be permitted to profit from his own wrong”, Prudential Ins. Co v. Tull, 690 F.2d 848, 849 (4th Cir.… Read More

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N.C. Court of Appeals: Songwooyarn Trading Company v. Sox Eleven- Restriction of Transfer of Property Pending Determination of Exemptions

Summary:

Songwooyarn Trading Company (STC) obtained a judgment against Defendant Ahn, among others.  Ahn filed a Motion to Claim Exempt Property, to which STC objected, specifically contending that Ahn had failed to list all non-exempt property, had undervalued property, and attempted to exempt property beyond that allowed by North Carolina law.  The trial court held that Ahn had failed to comply with the statutory requirements for claiming exempt property, but allowed Ahn the opportunity to refile his claimed exemptions.  STC again objected and subpoenaed documents from several banks.  Ahn sought to quash those subpoenas, but the trial court ordered production of documents related to accounts held by Ahn both individually and with his wife, but not as to accounts held solely by his wife. … Read More

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Bankr. W.D.N.C.: In re Eutsler- When are of Earnings of the Debtor “Earned” for Purpose of Exemption under N.C.G.S. § 1-362

Summary:

The Female Debtor received a bonus for 2010 in March 2011 ad filed Chapter 7 in June 2011.  She claimed an exemption in an annual bonus under N.C.G.S. § 1-362, as earnings of the debtor necessary for the support of the family and earned within 60 days.  The Chapter 7 Trustee objected.    The bankruptcy court held that a bonus did fall within the definition of earnings.   The court continued, however, to find that an annual bonus was not “earned” when received, but throughout the year.  Accordingly it was not “earned” within 60-days of filing and not entitled to exemption.

For a copy of the opinion, please see:

Eutsler- When are of Earnings of the Debtor Earned for Purpose of Exemption under N.C.G.S. Read More

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Law Review: Miller, Michelle- Who Files for Bankruptcy? State Laws and the Characteristics of Bankrupt Households

Abstract:

The characteristics of bankrupt households (such as income and asset levels) vary widely across  states. This paper asks whether these variations can be attributed to state exemption laws or state garnishment laws. Using a new household-level dataset, the author finds that high exemption levels encourage high asset households to file for bankruptcy while high garnishment rates encourage low income households to file for bankruptcy. These results are supported by a theoretical model in which households choose between repayment, bankruptcy, and non-response (which occurs when households simply “walk away” from their bills, allowing creditors to garnish their wages and seize their assets).… Read More

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