Challenges to the Discharge of Luxury Purchases and Cash Advances

One of the advantages of a Chapter 7 bankruptcy is that it allows you to permanently discharge certain debts, meaning that you will no longer have personal liability for them. As a general rule, credit card debt can be discharged, but there are limits.

Under the bankruptcy laws, any debts arising from the purchase of luxury goods  within 90 days of your petition for bankruptcy  made from a single creditor will be presumed to be fraudulent and non-dischargeable, if the purchases total more than  $650. This result is not automatic. The creditor has to file a Complaint in the bankruptcy seeking non-dischargeability. If it does so, the burden is on the debtor to prove that the purchases or resulting debt were not made with intent to defraud the creditor. Stated another way, a creditor will not be required to prove that you did not intend to pay or that you intended to discharge the debt in bankruptcy. Instead, you will have to  introduce evidence to demonstrate that the purchase was not a luxury, but necessary for the support or maintenance of the debtor or a dependent or spouse, or that the purchase was not made for a fraudulent or improper purpose.

For purposes of the bankruptcy law, a luxury item is considered to be any goods or services not reasonably required by the debtor for his or her own support or for the support of any legal dependent. While the determination of whether an item is a luxury item depends on circumstances, items like food, gas, clothing and furniture are more likely to be considered non-luxury than jewelry, home appliances, books, or a computer.

The same presumption applicable to luxury purchases also applies to cash advances on a credit card or other open end credit plan made within 70 days of filing, to the extent that these total more than $925. This does not apply where the cash advance is for a business purpose.

We generally recommend that our clients stay away from these kinds of purchases or use of credit. Like any unusual or suspect financial dealings, these will commonly result in suspicion and greater scrutiny across the board. When anticipating a bankruptcy, it is generally best to play it straight and stay within the bounds applicable to the “honest but unfortunate debtor”.

That said, a certain amount of legitimate planning going into a bankruptcy is permitted. The wisest course of action is to consult with and follow the advice of an experienced and ethical bankruptcy lawyer.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Can Criminal Debts Be Discharged?

Suppose you’ve run into trouble with the law—maybe you’ve incurred criminal penalties for drunk driving or have been ordered to pay restitution for malicious destruction of property or embezzlement. If you are facing financial challenges, you may be considering a Chapter 7 bankruptcy filing, so that you can permanently discharge some of your debts. Can any of the obligations arising out of the criminal proceeding be discharged in bankruptcy?

The answer—it depends. There are some criminal obligations that are not subject to discharge. For example, any debt you owe for fines or restitution that accompany conviction for a crime simply cannot be discharged. In addition, any fine or penalty imposed by a government agency is not subject to discharge.

However, in New Jersey, certain motor vehicle convictions result in a “motor vehicle surcharge”. This is payable to a state insurance fund. For that reason, courts have ruled that these surcharges can be discharged in either a Chapter 7 or Chapter 13 bankruptcy.

If you have criminal fines, traffic tickets, or non-tax penalties, these will not be dischargeable. We recommend taking steps to pay these, or plan to be paying them.

That said, for many people, a bankruptcy which clears away other debt makes it easier to pay the fines or penalties that must be paid.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing.  We offer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



What is a Discharge of Debt?

Dollar billIn a Chapter 7 or a Chapter 13 proceeding, a debtor may seek the “discharge” of debt. What does that mean and what doesn’t it mean? This blog post looks at what you can expect from a discharge in bankruptcy.

Fundamentally, a discharge means that you, as a debtor, are relieved of any personal liability for the debt. Your creditors can no longer file a lawsuit against you or take any legal action to compel you to pay a debt. There are, however, some caveats:

  • A discharge does not mean that you cannot make payments to a creditor. For example, if you have a personal loan from a relative, and you have it discharged in bankruptcy, you no longer have a legal obligation to pay the loan off, but you can choose to do so.
  • A discharge only relieves you from liability for a debt. It has no impact on liens and encumbrances, such as mortgages. Accordingly, even though a mortgage lender cannot seek to collect money owed on a mortgage, the lender can still foreclose under the terms of the mortgage. The same principle applies to other types of secured debts, including automobile
    loans. Even though the lender may not take legal action to recover the debt, the lender may repossess property pledged as collateral
  • The discharge does not necessarily end your bankruptcy petition The case may continue, even though certain debts have been discharged, as the trustee acquires and sells other assets that can be sold to satisfy creditors.
  • The discharge will end the automatic stay—When you file for bankruptcy protection, an automatic stay immediately goes into effect, preventing creditors from calling, writing, or taking any other action to collect a debt, other than through the bankruptcy proceeding. Once your discharge has been granted, the stay is lifted, to that any debts not included in the discharge may now be collected.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Debts Secured by Purchased Personal Property

Classic red Ford MustangMost people want to keep their car or truck, even if it is subject to a “car loan”. However, even staying current on the loan may not prevent a repossession if you do not take certain additional required steps. In a Chapter 7 Bankruptcy, for car loans, (or any other loans to purchase personal property where you put up what you were purchasing as collateral for the loan ) you have to offer the lender a “reaffirmation agreement” that effectively makes that particular loan “non-dischargeable”. This means that after the bankruptcy you will be personally responsible on the loan as though you had not filed a bankruptcy. That means that if you fell behind on the loan or otherwise violated its terms, the lender can not only repossess the car or other collateral, but can also sue you personally for any money due.

This is NOT a requirement in Chapter 13, only in Chapter 7.

Once you file a Chapter 7 Bankruptcy, your attorney should write to all the lenders whose loans must be reaffirmed offering to make that agreement.

This is a serious step. The reaffirmation agreement needs to be signed and submitted to the lender within 30 days after the First Meeting of Creditors and must be submitted to the court for approval before you receive your bankruptcy discharge. If you can show that you can afford the loan payments (or have someone who will make them for you), AND if you have an attorney who will sign off on the agreement saying this is true, the court will almost always approve the agreement. A careful and qualified attorney will want to make sure that the loan is in fact properly perfected by demanding a copy of the signed loan agreement and title or other documents and will not sign off on the agreement if it is in fact a hardship. Attorneys who have done so have been subject to court penalties.

If it appears you may not be able to afford the loan, the procedure is different. In this case, the court will schedule a hearing and you will be required to appear in court to explain why the loan should be approved. Even if payment is a hardship, courts do not necessarily disapprove, but will want to make sure you understand the seriousness of what you are doing.

Please note that car title loans, or other loans where the money borrowed was not used to buy the car or collateral are not subject to these requirements. There is also no requirement that mortgage or home equity loans secured real estate be reaffirmed, and courts will generally not approve these.

If you submitted the reaffirmation agreement and the court did not approve it, most courts hold that you cannot lose the car to repossession as long as you are current. If this happens to you, you or your attorney should ask the court to include in the order disapproving the reaffirmation agreement specific language that makes this clear.

This is another area where the need for qualified and experienced legal counsel is critical.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Risking the Loss of a Discharge because of Dishonesty

Signing a documentThe bankruptcy laws were put in place to give honest but unfortunate debtors a chance to return to financial stability. When you enter into bankruptcy, you are entering a fishbowl of sorts. All aspects of your financial life will be subject to examination by a trustee, the court or creditors. As a consequence, there are a number of circumstances where you can risk losing a discharge or having your discharge denied because of misrepresentation or dishonesty. As a general rule, once you have been denied a discharge, you may never again be able to pursue a discharge of any debts you had at the time of the denial.

Here’s how you can risk the loss or denial of a discharge.

  • You lie or make a false statement in any document or proceeding during the bankruptcy process. This can include falsification of assets or income, as well as misrepresentation of debts. When you file a petition in bankruptcy, you essentially make an oath that the representations you make during the process will be true and accurate. If it turns out that you made false statements of fact, or that there were material omissions in your filing, your discharge can be denied or withdrawn.
  • You conceal, destroy, alter or intentionally dispose of information relevant to your financial condition. This includes the destruction of documents that would indicate ownership of property or access to assets.
  • You transfer, remove, conceal, alter or destroy property that may be seized by the bankruptcy court to pay one of your creditors. This rule applies to all such acts within one year before the bankruptcy filing and after the filing.
  • You cannot explain the deficiency or loss of any assets.
  • You refuse to comply with any legitimate order issued by the bankruptcy court.

These problems can be solved or avoided through careful attention to detail and qualified, ethical advose of a bankruptcy attorney. Such advice is very important.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Debts Secured by Purchased Personal Property

A hand holding car keys and a remote control for keyless entry isolated over white.Most people want to keep their car or truck, even if it is subject to a “car loan”. However, even staying current on the loan may not prevent a repossession if you do not take certain additional required steps. In a Chapter 7 Bankruptcy, you can end up losing a car or other personal property under the bankruptcy laws, you can protect personal property from seizure to pay creditors if you “reaffirm the debt.” Reaffirming the debt essentially means that you acknowledge that you owe the money and indicate that you plan to keep making payments (i.e., you don’t intend to discharge the debt). It’s unclear, though, whether you have to have the reaffirmation approved by the bankruptcy court, or whether it’s sufficient to simply submit an application for reaffirmation. There is some precedent to suggest that the mere act of indicating that you plan to reaffirm the debt is sufficient.

It’s important that debtors understand this change in the bankruptcy laws. Before 2005, you could simply stay current on your obligations (after a discharge) and the lender could not repossess the collateral. Now, whether you are current or not, if you have filed a petition in bankruptcy and have not proposed to reaffirm the debt, the lender can take back the collateral.

To get a reaffirmation approved, you must prove to the court that making the payments on the note will not constitute an undue hardship. Your attorney can sign off on this for you, if your attorney reasonably believes that you will have the capacity to make payments, that you can reorganize other debts to make payments affordable, or that you have someone else who can make payments if you cannot. If your attorney is unwilling to sign off on the reaffirmation, the court can schedule a hearing to determine if the debt should be reaffirmed.

Regardless, before you can obtain a discharge, the application for reaffirmation must be submitted to the court. In addition, it’s wise to send a letter to every creditor with whom you wish to reaffirm, asking for the necessary forms.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Using Bankruptcy to Close a Business

Closing Business Operations with a Chapter 7 Bankruptcy Filing-Part One

The Personal Implications of a Business Bankruptcy Filing

Business Closed SignWhen your business is failing, and there’s no reasonable expectation of turning things around, you can simply shut your doors, but it won’t put an end to the stress and anxiety you are experiencing. The calls and letters will keep coming, and you may be named as a defendant in legal action to collect the debts of the business. Filing for bankruptcy protection can help you close down your business and minimize creditor harassment in the process. Here’s how it works.

Chapter 7 Liquidation Proceedings

With a bankruptcy, you have the opportunity to permanently discharge certain debts in exchange for allowing the bankruptcy court to sell some of your assets to reimburse your creditors. If you are a sole proprietor or operate your business as a general partnership, you will be personally liable for the debts of your business. Accordingly, if you don’t want creditors of the business to make claims against you personally for the debts of the business, you will need to file a personal Chapter 7 petition, as well as a Chapter 7 petition for your business.

Even if the business is a corporation or Limited Liability Company, very likely you will have personally signed for the business debt. If the business had a “corporate” credit card, you should assume that you, the business owner, signed the credit card applications personally as well.

When you file a bankruptcy petition, you (but not the business if it is a corporation, partnership, LLC or separate legal entity) will immediately be protected by the automatic stay in bankruptcy. The automatic stay prohibits creditors from calling, writing or taking any legal action (such as filing or advancing a lawsuit) to collect the debt from you, other than through the bankruptcy proceeding.

With a personal Chapter 7 bankruptcy filing, you must qualify by submitting to the means test created by the 2005 revisions to the bankruptcy law. This test would not apply if your personal debt obligations are primarily incurred by or for the business. Be prepared to demonstrate this to your attorney and the bankruptcy trustee.

If you want to save the business and keep it operating, a Chapter 11 reorganization is available, or if the business is a sole proprietorship (not an LLC) Chapter 13 might be available. These are more expensive, and careful attention needs to be paid to the cost and risk of failure vs the upside benefit of saving the business. More about that later.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney.

For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



Bankruptcy Fraud in the News

Pittsburg Real Estate Agent Charged with Bankruptcy Fraud

The federal bankruptcy laws were enacted to provide individuals with a second chance when circumstances put them on hard times. But the benefits afforded by the bankruptcy laws require honesty and full disclosure by petitioners. The failure to advise the bankruptcy court or trustee of assets, income or resources constitutes fraud, and can land you in a lot of hot water, as is being discovered by a real estate agent from the Pittsburgh area.

Gregory Makozy, the former owner of A1 Mortgage in Cranberry, an upscale suburb of Pittsburgh, was arrested by federal agents in Florida in August, charged with bankruptcy fraud and with making false statements in a federal bankruptcy proceeding. Makozy, who filed for bankruptcy in Florida in 2013, is accused of attempting to shield assets from creditors and the bankruptcy court by transferring them to his wife’s name and then selling them. Prosecutors say that his wife, Maria, is not charged with bankruptcy fraud, but has been arrested on embezzlement charges in a separate incident.

Here are some of the ways federal prosecutors allege that Makozy engaged in bankruptcy fraud:

  • Makozy sold his home in Butler County, Pennsylvania, in 2013, for more than a million dollars, transferred half of the proceeds to a corporate account in Florida, and then failed to report the holdings in the corporate account in his bankruptcy filing
  • Makozy owned an Aston Martin that he retitled in his wife’s name before the bankruptcy filing. After submitting his bankruptcy petition, he sold the car for $54,000.
  • Makozy made a gift of real property to his son, but then sold the property after building a house on it, netting $125,000 that was not reported on the bankruptcy filing

We always counsel clients to avoid this situation. Too often, non-disclosure makes the situation much worse. For example, fraud or non-disclosure can result not just in criminal conviction, but also the loss of property AND the permanent loss of any right to discharge debts.

Contact Our Office

At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing clients across South Jersey



Eligibility for Chapter 7 Bankruptcy in New Jersey

Cutting Credit CardIf you are struggling to meet your financial obligations, you may have considered a bankruptcy filing as a way to get a fresh start. If you have paid attention to bankruptcy issues in the news over the last few years, you may be aware that some of the eligibility rules have changed. Are those eligibility rules the same across the country or are they different in New Jersey. As will most things, the answer is both yes and no.

The Means Test for Filing a Chapter 7 Liquidation Proceeding

Under the 2005 revisions to the federal bankruptcy laws, to qualify to permanently discharge debts under a Chapter 7 petition, you must submit to what is known as a “means test.” The means test applies a formula based on your gross income for the preceding 6 months and other financial information about you to determine whether under that formula you are presumed to have sufficient net disposable income to repay your creditors over a three-to-five year period. If the numbers demonstrate that you have that capability, you won’t be able to discharge debts in Chapter 7, but will have to seek protection under Chapter 13.

While the requirement that you submit to a means test applies across the board (in all states and territories of the United States), the actual income and expense numbers plugged into the formula varies from state to state and county to county. Here’s how it works in New Jersey:

  • The first part of the New Jersey means test compares your entire household’s gross income for the past six months against the New Jersey median income for a household your size, as established using US Census Bureau numbers. The median is the point at which half the households earn more and half earn less. If your household gross income is below the median, you automatically qualify to discharge debts in Chapter 7. To determine your income, you average all income besides Social Security coming into your household during the last six months. This includes regular contributions by family members to household expenses.
  • If your income exceeds the median, you must provide additional information detailing your payroll deductions and household expenses and must qualify using a complex formula that limits what types of expenses you can deduct from your gross income. Not all expenses are allowable.

Certain people are given and exemption from the means test. If your debts are primarily business related or if you are a disabled veteran and incurred your debt while on active duty, you may be able to file a Chapter 7 without submitting to a means test.

Here is the important point: timing is everything! We have seen people who lost their qualification because they waited too long to file. If you are thinking about a possible bankruptcy, get a detailed review by a qualified attorney.

Contact Neuner & Ventura, LLP

To schedule an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request. There is no cost or obligation for your first meeting.

Representing Clients across South Jersey



Understanding the Discharge of Debt in Bankruptcy

Pile of billsMost people who have considered filing bankruptcy understand the fundamental difference between a Chapter 7 filing and a Chapter 13 petition. With a Chapter 7 bankruptcy, you may be able to discharge, or permanently terminate any obligation to repay, certain debts. Though discharge will occur in a Chapter 13, how you get there is different. Instead of subjecting assets to sale or liquidation, a Chapter 13 debtor restructures his/her debts, agreeing to repay creditors under new terms. A Chapter 13 Bankruptcy can discharge certain debts that are not dischargeable in Chapter 7 and there are limits and restrictions, though, on your right of discharge in a Chapter 7. Here are some of the debts you can and cannot extinguish in a Chapter 7 proceeding.

Dischargeable Debts in Chapter 7

A discharge will permanently release you from any obligation to repay a debt. Furthermore, your creditor will have no legal recourse to attempt to collect the debt. Under the bankruptcy code, there are 19 specific types of debts that cannot be discharged—all others generally qualify.

If you owe money for any reason, and that debt is secured by a lien, the discharge of the debt does not discharge the lien, unless the lien is removed in a separate proceeding. Accordingly, you may not owe any more on the obligation, but the creditor can still exercise the right to repossess the property under the lien. This is the subject of another article.

Non-Dischargeable Debts

Certain debts are always not discharged in both Chapter 7 and Chapter 13, and others can be discharged in Chapter 13 only. Here are some of them:

  • Child support or alimony “domestic support obligations”. Always not discharged.
  • Any other debt to a former spouse under a divorce judgment or marital property settlement is not dischargeable in Chapter 7 but can be discharged in Chapter 13.
  • In Chapter 13, or in a Chapter 7 where the Trustee has money to pay creditors, any debts not listed in your bankruptcy schedules
  • Unpaid income taxes, if a non-fraudulent tax return was filed. This is subject to complicated exceptions. Generally, if the return was last due over 3 years before the bankruptcy filing, the tax may be discharged. Note that most tax penalties ARE discharged.
  • Virtually all student loan debt, except in rare circumstances that qualify as “undue hardship” under a very hard test to meet.
  • In Chapter 7, amounts owed to governmental agencies for fines or penalties, except tax penalties for failure to pay or file tax returns. These CAN be discharged in Chapter 13 unless they were part of a criminal sentence.
  • Criminal fines, or restitution ordered as part of criminal sentencing.
  • Drunk driving or driving under the influence, if property damage or personal injury results.

There are also debts that may be discharged unless a creditor successfully object by filing a Complaint with the bankruptcy court. These include:

  • Purchases of luxury items on a credit card within 90 days of the bankruptcy filing, provided the total amount of such purchases exceeds $650
  • Cash advances of more than $925 within 70 days of a bankruptcy petition
  • Debts incurred through fraud, Consumer Fraud, misrepresentation or willful and malicious injury (eg assault or battery).

These rules are complex. The above is just a summary. If this is important to you, you should consult with a qualified and experienced bankruptcy attorney.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey



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