Illinois Bankruptcy Lawyer Blog

Bankruptcy: In re Greg J. Contos and Georgia M. Contos, 08-22580

Adversary: Webster Bank, NA v. Greg and Georgia Contos, 08-00963

Issued: October 29, 2009

Judge: John H. Squires

Read and download the Opinion in PDF format here.

Chapter 11 Trustee vs. Dominic Forte, 05-888

Issued November 24, 2009

Judge Eugene R. Wedoff

Summary The Court holds Defendant's transfer to be preference and grants Trustee's motion to avoid. Under 547(b), trustees may avoid certain payments to creditors as "preferences;" 550(a) requires creditors to turn over said payments to the bankruptcy estate.

View and download the opinion in PDF format here.

... According to the IRS, not necessarily.

Could my Canceled Debt be Taxable?

Yes. Typically, loan proceeds are not income because there is an obligation to repay. According to the IRS, when a lender forgives a debt it is considered income.

What Count as Income Anyway?

The IRS is concerned with gross income (i.e. "all income from whatever source derived"). If it is not debt canceled by bankruptcy or other qualified indebtedness, certain qualified student loans, a gift, or a bequest, it is income.

What About Income from my Canceled Mortgage Debt?

Income from mortgage debt cancellation is usually taxable. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows the exclusion of mortgage modification income. But only between the years 2007 through 2012.

What About Credit Card Debt Forgiveness?

In some cases, non-business credit card debt cancellation may be excluded from taxable income, but only if the cancellation is a result of bankruptcy or insolvency.

Where Can I Learn More About Canceled Debt Counting as Income?

The IRS has prepared an FAQ Page and Publication 4681 "Canceled Debts, Foreclosures, Repossessions, and Abandonments."

Source(s): IRS, U.S. Code, CreditCards.com, and Small Biz Accounting Specialist.

In re Tekena USA, LLC, 09-16969

Issued: November 19, 2009

Judge: Jacqueline P. Cox

Summary: The Court grants Creditor"s Motion to Dismiss. The Court agrees with Movant's allegations that Debtor's petition violated § 1112 (b) of the Bankruptcy Code's "Good Faith" requirement for Chapter 11. Movant has proven by a preponderance of the evidence that dismissal is justified.

View and download the opinion in PDF format here.

What is the "Home Affordable Modification Program"?

The "Home Affordable Modification Program" or HAMP is a federal program part of the Obama administration's stimulus package that seeks to incentivize mortgage providers to reduce mortgage loans down to a monthly payment that borrowers can reasonably afford.

Will my monthly mortgage payment actually be reduced?

If your current mortgage bill is more than 31% of your monthly income, under HAMP mortgage providers are required to reduce the monthly payments to 31% of gross monthly income without going under.

Do I qualify?

There are several requirements for qualification:

1. Only first mortgages, which must have originated prior to January 1, 2009, apply
2. The loan must either be delinquent or reasonably expected to default.
3. The borrower must have suffered hardship (increase in expenses and/or decrease in income).
4. The mortgage must be for the borrower's primary residence.
5. The mortgage amount for a one-unit residence must not exceed $729,750.
6. The borrower must consent to an escrow on real estate taxes and insurance.

What about second mortgages?

When the first mortgage is modified, a second mortgage will also be reviewed if it exists. The interest rate on your second mortgage will be reduced down to 1% for the first five years. Additionally, the term of the second mortgage will be increased to match the term of the first mortgage.

Where can I learn more?

You can visit http://hmpadmin.com for press releases and announcements or download the requisite forms here.

Source: Chicago Consumer Bankruptcy Conference Educational Materials and the Home Affordable Modification Program website.

In re Timothy Stirneman, 09 B 20315

Timothy Stirneman v. Audrey Stirneman, 09 A 00556

Issued November 4, 2009

Judge Jack B. Schmetterer

Summary: In the case at hand, Parties entered a Term Sheet Agreement with regards to shared office space; each was to pay 50% of certain shared expenses. Defendant had not fulfilled her part of the agreement. Since the parties were intended to be personally liable, the Court has found Defendant personally liable for the unpaid shared expenses. Furthermore, Plaintiff is entitled to relief against Defendant"s transfer of funds for new personal office equipment because Defendant acted so as to defraud Plaintiff. The Court therefore has decided that a preliminary injunction against Defendant is warranted.

View and download the opinion in PDF format here.

In re Dorsie Wayne Mosher, Jr., 06 B 71261

William T. Neary, US Trustee, v. Mosher, 07 A 96013

Issued: November 4, 2009

By Judge: Manuel Barbosa

Summary: The Court ruled in favor of the U.S. Trustee by denying the Debtor"s petition to discharge. Under 11 U.S.C. § 727(a)(2), the Court must grant discharge to the debtor unless the debtor intentionally hindered, delayed, or defrauded a creditor or Trustee. Debtor knowingly failed to list his income and admitted to making a conscious decision to list only certain debts in his petition. The Court finds that the Debtor "knowingly and fraudulently made false oaths" and thus should be denied a discharge under Section 727(a)(4)(A).

View and download the opinion in PDF format here.

In re Jody R. Deutscher and Kelly C. Deutscher, 08 B 73603

Issued: October 28, 2009

By Judge: Manuel Barbosa

Summary: The Court granted U.S. Trustee's motion to dismiss. Under 11 U.S.C. § 707(b)(1), the Court may dismiss a case in which the debts are primarily consumer debts, if the granting of relief is tantamount to abuse of the provisions of Chapter 7. The Debtors fall under two applicable provisions: 1. Debtors purchased luxuries on credit on the eve of bankruptcy 2. Debtors' budget is "excessive or unreasonable." As the Court found, The Debtors want to continue a lifestyle of luxury, purchasing a yacht and boat, "even after seeking a bankruptcy discharge by reaffirming their debt on these luxury items rather than [...] do some belt tightening."

View and download the opinion in PDF format here.

In re Joseph M. Phelan and Mary M. Phelan, 09 B 70398

Issued: October 28, 2009

By Judge: Manuel Barbosa

Summary: Under the Fifth Amendment's Due Process clause, creditors have the right to "reasonable notice" when being listed as a creditor in bankruptcy petitions. Creditor Employee Benefits Security Administration (ESBA) did not learn of Debtor"s intent to file for bankruptcy until at east two months after the date required by Fed. R. Bank. P. 4007(c). Furthermore, Debtors failed to list EBSA on their bankruptcy petition. Therefore the Court has granted the Secretary of Labor leave to file an adversary complaint for determination of dischargeability.

View and download the opinion in PDF format here.

We would have accepted either C-I-T or A-D-V-A-N-T-A as a correct answer

As reported all over the Web, including this story by CNN, credit card overlord and perennial heavy-handed creditor Advanta filed for Chapter 11 bankruptcy protection a few days ago - just one week after CIT Group, a top secured lender to small business, did the same. Both lenders experienced (ha!) a sharp rise in defaults. Welcome to the world of the consumer. Personally I hope that their creditors show them no mercy. If the Bankruptcy System is to work then it must be an equal handicap for large and small. If Advanta or CIT are reconstituted through Chapter 11 I can only hope that this time the intention is to help small business and business owners - not to hound them to death as both creditors are famous for.

In an article that would only make sense to an economist, Bloomberg reported that fewer people this November have mortgages that exceed the value of their homes - that is, fewer people are "underwater" this year than last. That faint flicker of hope is supposed to mean that overall the housing market is stabilizing.

In related news, I came in 288th in the Chicago Marathon this year - better than I did last year so ... I guess that means I'm a winner? Sure, let's go with that.

Q: I am a limited partner. I suspect that the general partner converted funds belonging to the limited partnership. How do I sue on behalf of other limited partners?

A: A general partner is a fiduciary to limited partners, much as a director is to shareholders in a corporation. This means that the gp account for his actions to the limited partners and at all times conduct itself with the utmost good faith. If those rules were not observed then the proper remedy is a derivative suit - so named because the complaining party must sue in the name of the limited partnership. Before filing suit however certain questions must be answered and you may need to hire a forensic accountant to fully investigate. Finally, keep in mind that if the limited partnership or the general partner need(s) to file bankruptcy then a post-filing adversary complaint is your route.

In re Griffin Trading Company, Inc., 98 B 41742

Leroy G. Inskeep, Trustee v. Farrel and Roger Griffin, 01 A 00007

Opinion: In an Adversary case stemming from the Chapter 7 bankruptcy of a futures broker, judgement for Trustee is reversed due to lack of sufficient causation following remand from the District Court.

Opinion Issued October 30, 2009

By the Honorable Bruce W. Black

View and download the opinion in PDF format here

This morning I noticed on Yahoo's front page that "Worst recession since 1930s hits end." Let's just say I'm still skeptical. Unemployment still hovers at 9.9% and that just doesn't feel like a party. The actual article to which the link refers contains the more subdued headline "Economy growing but recovery could be at risk." I thought so.

Look, the GDP has grown 3.5% this quarter. That's good news. According to a New York Times article, this growth rate is on par with average annual growth rate that the U.S. has enjoyed for the last 80 years. Nice. But before we get too excited, this increase in consumer spending (a major component of the U.S. Gross Domestic Product) is driven by the exorbitant expenditure on government programs. And as soon as such programs as Clash for Clunkers end (and they will eventually), economists predict that this recovery may not last.

Basically, the economy grew by 3.5%... but in the long term, it may or may not matter. Does a current quarterly increase in consumer spending mean that consumer spending has actually increased for good? It's just too early to say.

Millelliti Forrest filed a Chapter 13 bankruptcy petition on June 8, 2009 (No. 09 B 20874). Wanting to avoid a lien through the bankruptcy process, the petition indicated that Litton Loan Servicing's "second lien is stripped from the property and will be paid as an unsecured creditor" due to the lack of equity in the debtor's primary residence. Litton Loan Servicing objected.

In a memorandum opinion sustaining Litton Loan Servicing's objection to the Chapter 13 plan, United States Bankruptcy Judge Jack B. Schmetterer ruled that the debtor may not strip off the junior mortgage because the Bankruptcy Code and Rules [Rule 7001(2)] and the Constitution require the debtor to file an adversary proceeding