Category: Bankruptcy & Credit

SCOTUS: False Representation Now Unnecessary to Find Consumer Bankruptcy Fraud
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SCOTUS: False Representation Now Unnecessary to Find Consumer Bankruptcy Fraud | Richard E. Weltman

By Richard E. Weltman and Melissa A. Guseynov We previously reported on the split among the federal circuit courts of appeal concerning circumstances under which a debtor’s discharge with regard to a particular debt may be denied based on actual fraud if, prior to filing, the debtor transferred assets away from creditors without directly misleading them. In Husky International Electronics, Inc. v. Ritz, the United States Supreme Court settled the split of opinion among the lower courts, holding that debtor’s actual misrepresentation is not a necessary prerequisite to demonstrate “actual fraud” under section 523(a)(2)(A). Husky Inter. Elect., Inc. v. Ritz, 136 S.Ct. 1581 (2016).

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Bankruptcy Update: New Jersey Bankruptcy Judge Allows Debtor to Retain Inherited IRA
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Bankruptcy Update: New Jersey Bankruptcy Judge Allows Debtor to Retain Inherited IRA | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In 2013 the Supreme Court held that funds held in an inherited non-spousal IRA were not exempt under Section 522 of the Bankruptcy Code. You can read our blog article on Clark v. Rameker here. However, in a New Jersey bankruptcy court decision handed down last month, Bankruptcy Judge Christine M. Gravelle held that an inherited IRA is not property of the debtor’s bankruptcy estate, regardless of whether it would be characterized as an exempt asset under the Bankruptcy Code.  In re Norris, 2016 WL 2989234 (Bankr. D.N.J. May 20, 2016).

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Bankruptcy Update: Seventh Circuit Holds That Tenant’s Pre-Petition Termination of Lease May be Voidable in Bankruptcy
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Bankruptcy Update: Seventh Circuit Holds That Tenant’s Pre-Petition Termination of Lease May be Voidable in Bankruptcy | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov On March 11, 2016, the Court of Appeals for the Seventh Circuit held that a tenant debtor’s pre-petition lease termination may be voidable as a fraudulent conveyance or a preferential transfer in the tenant’s subsequent bankruptcy case. In re Great Lakes Quick Lube LP, 816 F.3d 482 (7th Cir. 2016).

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Madoff Update: Mere Suspicion of Fraud Not Enough to Extend Trustee “Claw-Back” to Six Years
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Madoff Update: Mere Suspicion of Fraud Not Enough to Extend Trustee “Claw-Back” to Six Years | Michael L. Moskowitz

We have previously reported on Bernard Madoff’s massive Ponzi scheme and the resultant “clawback” lawsuits pending in the bankruptcy and district courts for the Southern District of New York. In a decision dated March 14, 2016, Bankruptcy Judge Stuart Bernstein granted partial relief to an investment fund seeking to dismiss a “clawback” lawsuit filed by Irving Picard, the trustee for Bernard L. Madoff Investment Securities, LLC (“BLMIS”).

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Bankruptcy Update: District Court Prohibits Chapter 13 Debtors From Compelling Mortgagee to Accept Title to Surrendered Property
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Bankruptcy Update: District Court Prohibits Chapter 13 Debtors From Compelling Mortgagee to Accept Title to Surrendered Property | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov We previously reported on In re Sherwood, a Southern District of New York bankruptcy decision, wherein the court held a debtor could not confirm a chapter 13 plan over a lender’s objection where the plan would vest title to surrendered property in the mortgagee without its consent. See In re Sherwood, 2016 WL 355520, at * 7 (Bankr. S.D.N.Y. Jan. 28, 2016).

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Condominium Associations in New Jersey Score Big Win Protecting Pre-Petition Liens in Consumer Bankruptcy Cases
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Condominium Associations in New Jersey Score Big Win Protecting Pre-Petition Liens in Consumer Bankruptcy Cases | Michael L. Moskowitz

By Michael L. Moskowitz Post-petition claims of condominium associations for common charges have always held a protected status when a consumer debtor files for bankruptcy relief. Under 11 U.S.C. §523 (a)(16), as amended in 2005, chapter 7 debtors who retain legal, equitable and/or possessory ownership interest in their condominium unit remain liable for post-petition condominium charges.

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Don’t Be Fooled: Bankruptcy Exemptions & Dollar Amounts Rose Again on Apr 1
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Don’t Be Fooled: Bankruptcy Exemptions & Dollar Amounts Rose Again on Apr 1 | Richard E. Weltman

A 3% cost of living adjustment became effective for new bankruptcy cases filed on and after April 1, 2016, according to the Judicial Conference of the United States. This means certain dollar amounts relating to small business chapter 11 cases, preference claims, means testing, and property exemptions went up. These adjustments to the federal Bankruptcy Code are automatically issued every three years to keep up with inflation.

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Lender Advisory: Second Circuit Approves Debtor’s FDCPA Lawsuit After Receiving Bankruptcy Discharge
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Lender Advisory: Second Circuit Approves Debtor’s FDCPA Lawsuit After Receiving Bankruptcy Discharge | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In a recent decision of relevance to lenders, Garfield v. Ocwen Loan Servicing, LLC (“Ocwen”), 2016 WL 26631 (2d Cir. Jan. 4, 2016), the Court of Appeals for the Second Circuit held that a debtor may commence a lawsuit to dispute a lender’s collection practices under the Fair Debt Collection Practices Act (“FDCPA”) after receiving a discharge in bankruptcy.

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Lender Alert: Chapter 13 Debtor Can’t Compel Secured Lender to Accept Title to Surrendered Collateral
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Lender Alert: Chapter 13 Debtor Can't Compel Secured Lender to Accept Title to Surrendered Collateral | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In a recent opinion, Bankruptcy Judge James L. Garrity, Jr., sitting in the Southern District of New York, held that a debtor cannot confirm a chapter 13 plan over a lender’s objection where the plan would compel the transfer of title to the secured creditor, explaining that forcing title onto the creditor would transform the creditor’s right to recover its collateral into an obligation, thereby rewriting the Bankruptcy Code and the underlying loan documents. In re Sherwood, 2016 WL 355520, at * 7 (Bankr. S.D.N.Y. Jan. 28, 2016).

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Lenders’ Best Practices in Foreclosure Cases Revisited: Mortgagees’ Lack of Good Faith May Lead to Assessment of Sanctions by Courts
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Lenders’ Best Practices in Foreclosure Cases Revisited: Mortgagees’ Lack of Good Faith May Lead to Assessment of Sanctions by Courts | Michael L. Moskowitz

By Michael L. Moskowitz and Michele Jaspan We previously reported on cases where lenders are forced to forfeit accrued mortgage interest as a result of a court’s finding of “bad faith,” regarding borrower requests for mortgage modifications. The foreclosure courts are continuing to find new ways to sanction lenders as evidenced below.

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Foreclosure Alert: Failure to Establish Proper Mailing Practices Can Lead to Foreclosure Case Dismissal
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Foreclosure Alert: Failure to Establish Proper Mailing Practices Can Lead to Foreclosure Case Dismissal | Michael L. Moskowitz

We previously reported on the importance of strict compliance with the mailing of the 90-day pre-foreclosure notice pursuant to RPAPL §1304 (“Notice”). Such strict compliance has become fodder for defendants’ lawyers as failure to give such notice to all persons signing either the note or mortgage, as a borrower, is a fatal defect. Lender’s failure to comply with this important condition precedent will result in case dismissal.

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Lender Update: Louisiana Bankruptcy Judge Allows Chapter 7 Debtor to Strip-Off Wholly Unsecured Judicial Lien
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Lender Update: Louisiana Bankruptcy Judge Allows Chapter 7 Debtor to Strip-Off Wholly Unsecured Judicial Lien | Michael L. Moskowitz

By: Michael L. Moskowitz and Melissa A. Guseynov A chapter 7 debtor in Louisiana recently succeeded in avoiding a $180,000 judgment lien on her home after a bankruptcy judge concluded that the United States Supreme Court's holding in Dewsnup v. Timm, 502 U.S. 410 (1992) is not applicable to non-consensual judicial liens. In re Mayer, 2015 WL 7424327 (Nov. 20, 2015).

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Supreme Court Expected to Take Close Look at Student Loan Debt in Bankruptcy: ‘Fresh Start’ or ‘Undue Hardship’?
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Supreme Court Expected to Take Close Look at Student Loan Debt in Bankruptcy: ‘Fresh Start’ or ‘Undue Hardship’? | Richard E. Weltman

By Richard E. Weltman and Melissa A. Guseynov We have previously reported on judicial treatment of student loan debt dischargeability in bankruptcy—more specifically, how federal courts construe section 523(a)(8) of the Bankruptcy Code, which prohibits bankruptcy courts from discharging most student loan debt “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8).

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Lender Alert: Two New York Federal Courts Find No FDCPA Violation -Where Debtor Account Numbers Appear on Collection Envelopes
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Lender Alert: Two New York Federal Courts Find No FDCPA Violation - Where Debtor Account Numbers Appear on Collection Envelopes | Richard E. Weltman

By Richard E. Weltman and Melissa A. Guseynov We have previously reported on the nuances of the federal Fair Debt Collection Practices Act (“FDCPA”) and the pitfalls to lenders who fail to strictly adhere to its requirements. However, in two recent unrelated federal court decisions, Judge Colleen McMahon of the District Court for the Southern District of New York and Judge John Curtin of the District Court for the Western District of New York, both concluded that the mere appearance of an account number on a collection envelope, without more, does not violate FDCPA.

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Lender Advisory: E.D.Pa. Clarifies Interplay Between FDCPA and Bankruptcy Code
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Lender Advisory: E.D.Pa. Clarifies Interplay Between FDCPA and Bankruptcy Code | Richard Weltman

By Richard E. Weltman and Melissa A. Guseynov In a recent decision important to lenders, Torres v. Asset Acceptance, LLC, the Hon. Eduardo C. Robreno, U.S.D.J., held that filing a stale proof of claim in bankruptcy court cannot form the basis of a claim under the Fair Debt Collection Practices Act (“FDCPA”). The facts are as follows: Margaret Torres filed for relief under Chapter 13 in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Creditor, Asset Acceptance, thereafter filed a proof of claim for “money loaned.” Importantly, the proof of claim stated that the last transaction and payment date was outside of Pennsylvania’s four-year statute of limitations period for contract claims. Torres then commenced an adversary proceeding, claiming that lender’s filing of the proof of claim on the time-barred debt constituted a FDCPA violation. Asset Acceptance moved to dismiss.

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Foreclosure Advisory: Mortgagee’s Lack of Good Faith May Lead to Forfeiture
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Foreclosure Advisory: Mortgagee's Lack of Good Faith May Lead to Forfeiture | Michael L. Moskowitz

By Michael L. Moskowitz and Melissa A. Guseynov In the recent case of Federal National Mortgage Assoc. v. Singer (Case No. 850039/2011, Sup Ct, NY County, July 21, 2015), Manhattan Supreme Court Justice Peter Moulton determined that two mortgage banks, Federal National Mortgage Association and Bank of America, N.A. (“Lenders”), must forfeit more than $100,000.00 in accrued mortgage interest for acting in bad faith regarding borrower requests for mortgage modifications.

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One Size Fits Some: Defending Preference and Fraudulent Transfer Claims
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One Size Fits Some: Defending Preference and Fraudulent Transfer Claims | Richard E. Weltman

Most debtors see bankruptcy as a way to wipe out debt at the expense of creditors. This is sometimes true, but only part of the story. The bankruptcy code also protects creditors in many important ways. One way is by preserving the equal distribution of a debtor’s assets. One of the bankruptcy code provisions that seeks to level the playing field respecting equal asset distribution among unsecured creditors is section 547.

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Supreme Court Asked to Resolve Circuit Split Regarding Consumer Bankruptcy Fraud
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Supreme Court Asked to Resolve Circuit Split Regarding Consumer Bankruptcy Fraud | Richard E. Weltman

By Richard E. Weltman and Melissa A. Guseynov The United States Supreme Court has been asked to resolve another split among the circuit courts assessing fraud in consumer bankruptcy cases. At issue is whether debtors in chapter 7 and chapter 13 cases can have their debt discharges blocked under section 523(a)(2)(A) of the bankruptcy code, following pre-petition efforts to transfer assets away from creditors without directly misleading them. The First and Seventh Circuit Courts of appeal have both issued holdings that directly conflict with a recent ruling by the Fifth Circuit. The Second Circuit has not directly addressed whether a court may find “actual fraud” absent a specific finding of misrepresentation by a debtor.

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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 5
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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 5 | Michael L. Moskowitz

Harris v. Viegelahn Debtor Who Converts to Chapter 7 Is Entitled to Return of Funds Not yet Distributed By Chapter 13 Trustee By Michael L. Moskowitz and Melissa A. Guseynov On May 18, 2015, in Harris v. Viegelahn, the United States Supreme Court unanimously held that undistributed plan payments made by a debtor from his or her wages, and held by a Chapter 13 trustee at the time of the case’s conversion to Chapter 7, must be returned to the debtor. Harris v. Viegelahn, 135 S.Ct. 1829 (2015). The decision resolves a Circuit split, as well as an issue that has divided bankruptcy courts for decades.

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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 4
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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 4 | Michael L. Moskowitz

Wellness International Network Ltd. v. Sharif Bankruptcy Judges May Render Final Decisions on Legal Disputes Arising in Bankruptcy if All Parties Consent By Michael L. Moskowitz and Melissa A. Guseynov On May 26, 2015, in Wellness International Network Ltd. v. Sharif, the Supreme Court held that Article III of the United States Constitution permits bankruptcy judges to adjudicate so-called “Stern” claims, with the parties’ knowing and voluntary consent. Wellness International Network Ltd. v. Sharif, 135 S.Ct. 1932 (2015).

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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 3
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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 3 | Michael L. Moskowitz

Bullard v. Blue Hills Bank 

Orders denying plan confirmation are not final orders from which an appeal may be taken as a matter of right

 By Michael L. Moskowitz and Melissa A. Guseynov

On May 4, 2015, in Bullard v. Blue Hills Bank, the Supreme Court unanimously held that orders denying plan confirmation do not constitute final orders from which an appeal may be immediately taken as a matter of right. The Court’s decision in Bullard resolves a significant circuit split with respect to a debtor’s ability to appeal bankruptcy court orders.

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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 2
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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 2 | Michael L. Moskowitz

2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 2 Baker Botts LLP v. Asarco LLC

Litigation Fees Incurred By Counsel in Defense of Bankruptcy Fee Application are not Compensable

The Supreme Court recently ruled that bankruptcy courts may not award legal fees to professionals for the costs incurred in defending their fees. The decision in Baker Botts, LLP v. ASARCO, LLC, written by Justice Clarence Thomas for the majority, held that section 330(a) of the United States Code does not give bankruptcy courts the discretion to award fee-defense fees under any circumstances.

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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 1
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2015 Mid-Year Review of Supreme Court Bankruptcy Decisions: Part 1 | Michael L. Moskowitz

Bank of America, N.A. v. Caulkett

Junior Mortgages Remain Viable Liens Even if Residential Property is Completely Underwater in a Chapter 7 Case

By Michael L. Moskowitz and Michele K. Jaspan

The United States Supreme Court recently reversed a ruling from the Eleventh Circuit in the case of Bank of America, N.A. v. Caulkett, which had permitted individual chapter 7 debtors to “strip” junior liens off their homes when the first mortgage lien was underwater. The Supreme Court held that a debtor in a chapter 7 proceeding may not void a junior mortgage lien under section 506(d) of the Bankruptcy Code when the debt owed on a senior mortgage lien exceeds the current value of the collateral, if the creditor’s claim is both secured by a lien and allowed under section 502 of the Bankruptcy Code.

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Petters Update: Minnesota Supreme Court Ruling May Affect Clawback Lawsuits
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Petters Update: Minnesota Supreme Court Ruling May Affect Clawback Lawsuits  | Michael Moskowitz

We have previously reported on Thomas Petters’ $3.5 billion Ponzi scheme and the resultant “claw back” lawsuits currently pending in the Minnesota bankruptcy court. Read that report here. In Ponzi scheme clawback litigation, a trustee, receiver or creditor will often utilize the Ponzi scheme “presumption” to prove the fraudulent intent of a transferor in connection with fraudulent transfer claims by establishing that the debtor operated a Ponzi scheme, and that the transfers at issue were made in furtherance of that scheme. In particular, the Ponzi scheme presumption proves that, among other things, the person or entity running the scheme had actual intent to defraud investors.

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LENDERS BEWARE: How One Borrower Acquired His House Practically for Free
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LENDERS BEWARE: How One Borrower Acquired His House Practically for Free  | Michael Moskowitz

In the case of In re Washington, No. 14-14573-TBA, 2014 WL 5714586 (Bankr. D.N.J. Nov. 5, 2014), the United States Bankruptcy Court for the District of New Jersey held that the mortgagee and mortgage servicer (“the Mortgagees” or “Plaintiff”) were time-barred under New Jersey state law from enforcing borrower’s default under both the note and mortgage. As a result, the borrower hit the jackpot and was entitled to own his home, free and clear of the mortgage debt, even though he only made three mortgage payments before the loan went into default.

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Get It Right the First Time: Best Practices for Mailing and Recording the New York RPAPL 90-day Pre-Foreclosure Notice
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Get It Right the First Time: Best Practices for Mailing and Recording the New York RPAPL 90-day Pre-Foreclosure Notice  | Michael Moskowitz

New York’s Real Property Actions and Proceedings Law (“RPAPL”) § 1304 requires a mortgage lender to notify a residential home borrower of an impending foreclosure action at least 90 days before the foreclosure action is commenced, using specific statutory language, printed in 14 point type, sent by registered or certified mail, as well as by first class mail, to the borrower. The emphasis of this article is the peril which will befall a lender if it fails to timely register the statutorily mandated notice.

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Equal Protection for Judgment Debtors
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Equal Protection for Judgment Debtors | Wayne Greenwald

We represent all the players in the debtor-creditor spectrum. So, we've developed some perspective. Sometimes the view is disheartening. A concern arises in defending the enforcement of money judgments. When representing judgment debtors, judges have said to us "this is a federal judgment and it must be paid," or "it may not be today, it may not be tomorrow, but this judgment will be paid," or one judge thundered "a judgment should be paid."[1] These sentiments are echoed in reported decisions.[2]

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Bankruptcy Assisted Divorces
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Bankruptcy Assisted Divorces | Wayne Greenwald

Marx was right! "Love flies out the door when money comes innuendo."1 Unfortunately for some, money problems keep some couples together who'd rather be divorced. The issues become who pays the debt versus who keeps the couch, cat and castle.2 Bankruptcy can help divorcing couples get two fresh starts: one marital and one financial. Thanks to Congress the Bankruptcy Code Amendments of 2005 made this possible. The "sea change" was: (a) changing domestic support obligations to first priority in payments to unsecured creditors;

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Bankruptcy Trustee Cannot Sell Debtor-Tenant’s Rent Stabilized Lease
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Bankruptcy Trustee Cannot Sell Debtor-Tenant’s Rent Stabilized Lease | Patrick Yu

{3:54 to read} In the case of Mary Veronica Santiago-Monteverde v. John S. Pereira, Chapter 7 Trustee (In re: Santiago-Monteverde), 12-4131, the U. S. Court of Appeals for the Second Circuit (“U.S. Court of Appeals”) reversed the decision of the lower federal court (“District Court”), U.S. District Court for the Southern District of New York, which affirmed the order of the bankruptcy court (“Bankruptcy Court”) striking the claim of the debtor, Mary Veronica Santiago-Monteverde (“Debtor-Appellant”), that her rent stabilized lease was exempt from her bankruptcy estate

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Lender Alert: New Jersey Appeals Court Holds that Homeowners May Sue Over Denial of Mortgage Modifications
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Lender Alert: New Jersey Appeals Court Holds that Homeowners May Sue Over Denial of Mortgage Modifications  | Michael L. Moskowitz

A New Jersey Appeals Court recently held that homeowners who enter into trial agreements to modify their mortgages under the Federal Home Affordable Modification Program (“HAMP”), and comply with the terms thereof, may commence suit for breach of contract, and possibly consumer fraud, if lenders deny them permanent modifications. In this particular case, Arias and Padilla v. Elite Mortgage Group, Inc., et al, the Superior Court of New Jersey’s Appellate Division upheld a summary judgment ruling allowing the lender to deny a mortgage modification, noting that the homeowners’ repeated lapses in payment constituted a breach of the trial modification agreement.

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