Monthly Archives: June 2022

In a recent decision, the Ontario Court of Appeal held that the sale proceeds of a property held in trust can be applied to a beneficiarys bankruptcy obligations.

Richards (Re), 2022 ONCA 216 dealt with a situation where real property was held in a trust that was created by a father for the benefit of his son (the Beneficiary). The trust held the property during the lives of the Beneficiarys parents, with a life interest permitting them to live at the Property. As per the terms of the trust, the date of death of the second parent was designated as the Time of Division. At the Time of Division, the trustees were to distribute the trust fund, which included the property and any Chattels, to the Beneficiary, if he was alive at the time.

In 2010, the father passed away and his wife continued to live at the Property until she passed away in July 2020. Prior to her death, the trustees of the trust sold the property and held the proceeds of sale in the amount of $1,172,120.90 in trust.

At the Time of Division, the Beneficiary was an undischarged bankrupt and faced an outstanding judgement by the bank for $987, 613, plus costs and interest. In October 2020, the bank obtained an order under s. 38 of the Bankruptcy and Insolvency Act (the Act) and was assigned the rights of the Beneficiarys trustee in bankruptcy to make a claim against the proceeds of sale. The bank brought a motion to recover the sale proceeds up to the amount owed by the Beneficiary and a declaration that the Beneficiary was the trusts beneficiary and had an interest in the property, as per the terms of the trust. The bank argued that the sale proceeds constituted property of the bankrupt.

The Beneficiary argued that his interest in the property was suspended while he is bankrupt, and the property would only vest upon his discharge from bankruptcy. The bankruptcy judge rejected this argument. It was held that the Trusts provisions which applied to the property during the lifetimes of the Beneficiarys parents were overridden by the provisions which applied to the property after the parents death.

Ultimately, the bankruptcy judge found that the property vested in the Beneficiary at the Time of Division and thus vested in the bankruptcy trustee. Since the bank was assigned the rights of the trustee, the bank was entitled to the proceeds of sale up to the amount owed by the Beneficiary

The Beneficiary appealed and the Ontario Court of Appeal upheld the bankruptcy judges order. In coming to its decision, the court noted that to decide otherwise would offend the public policy which underlies the Act, as it would allow a person to place assets out of the reach of creditors.

This decision presents an interesting analysis of the interplay between a beneficiarys rights under a trust and in a bankruptcy situation. It also serves as a reminder that beneficiaries in such situations cannot use the terms of a trust to shield their obligations from creditors.

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The interplay between benefits under a trust and bankruptcy: A beneficiary cannot shield its obligations to creditors by hiding behind the terms of a...

A homestead exemption is a law that protects a certain amount of equity in an individuals primary residence from the claims of his or her creditors or, in some states like Florida, the amount of the exemption is unlimited provided the residence is within a specified acreage. Equity is typically defined as the fair market value of the residence less the amount of any mortgage, other consensual lien, or statutory lien (such as for real estate taxes) against the residence.

An individual filing bankruptcy can utilize the homestead exemption of his or her state to protect whatever the state will allow as an exemption to its residents. 11 U.S.C. 522(b)(3)(A). Thus, many issues relating to the applicability and scope of a states homestead laws are commonly decided in the context of a bankruptcy proceeding.

Most states have had homestead exemption laws on their books for many years, but up until 1993, Connecticut did not have one. The original Connecticut homestead exemption was enacted into law on June 29, 1993, with an effective date of October 1, 1993, and shielded from the claims of creditors a homeowners primary residence up to the value of $75,000, with value defined as the fair market value of the residence less the amount of any statutory or consensual lien (like a mortgage) which encumbers it (Original Act). Section 3 of the Original Act expressly provided: This act shall take effect October 1, 1993, and shall be applicable to any lien for any obligation or claim arising on or after said date. Even back in 1993, most other states had some form of homestead protection for their residents. See In re Duda, 182 B.R. 662, 668 (Bankr. D. Conn. 1994) (observing that the Original Act was enacted to bring Connecticutlaw in line with that of other states which generally provide some homestead exemptionor [other] protection).

On July 12, 2021, Governor Ned Lamont signed into law Public Act 21-161 (the 2021 Act or Amendment), which amended Connecticut's homestead exemption by repealing the prior version of the statute, renumbering its provisions, and increasing the homestead exemption from $75,000 to $250,000, effective October 1, 2021. The 2021 Act provides, in pertinent part, as follows:

The following property of any natural person shall be exempt:

(21) The homestead of the exemptioner to the value of two hundred fifty thousand dollars, provided value shall be determined as the fair market value of the real property less the amount of any statutory or consensual lien which encumbers it, except that, in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other willful, wanton, or reckless misconduct committed by a natural person, to the value of seventy-five thousand dollars.

Unlike the Original Act, however, the 2021 Act did not come with a provision that confined the exemption to claims arising after its effective date of October 1, 2021.

In two recent decisions, Connecticut bankruptcy courts have ruled that the new $250,000 homestead exemption is applicable to any claim arising either before or after the effective date of the 2021 Act, i.e. that it has retroactive effect, principally because, as mentioned, the 2021 Act was not accompanied by a statutory provision which limited its application to claims arising after its effective date. See In re Cole, 2022 WL 1134626 (Bankr. D. Conn. Apr. 15, 2022) (Tancredi, J.); In re Faherty, 2022 WL 1191256 (Bankr. D. Conn. Apr. 20, 2022) (Nevins, C.J.). The ruling in Cole is on appeal to the Connecticut District Court. In re Cole, 3:22-cv-00587-VAB (appeal filed Apr. 25, 2022).

More recently in the Cole case, Judge Tancredi denied the chapter 7 trustees motion for a stay pending his appeal which, if granted, would have held up the distribution of the proceeds of the debtors $250,000 homestead exemption that were derived from a sale of her homestead during the chapter 7 case. See In re Cole, 2022 WL 2196737 (Bankr. D. Conn. June 17, 2022). The stay request was denied on the basis that the trustee could not establish a substantial possibility of success on the merits and, resultingly, was unable to establish irreparable harm if a stay was not granted. Id. at *7-8.

As a result of the stay ruling, the Court granted the debtors motion for distribution of her homestead proceeds, which was ordered to be made within 21 days of it ruling. Id. at *9. This latter ruling may imperil the trustees appeal based on the doctrine of equitable mootness, which can be the basis for dismissal of an appeal if actions taken under the order appealed from, such as the payment of money, cannot easily be undone or if a court considers it inequitable to unscramble those actions. See generally In re BGI, Inc., 772 F.3d 102, 107 (2d Cir. 2014) (applying equitable mootness in chapter 11 liquidation proceedings and describing it as a pragmatic doctrine that is grounded in the notion that, with the passage of time after a judgment in equity and implementation of that judgment, effective relief on appeal becomes impractical, imprudent, and therefore inequitable); ANR Co., Inc. v. Rushton, 2012 WL 1556236, at *4 (D. Utah May 2, 2012) (applying equitable mootness in chapter 7 case). But see In re Bodenheimer, Jones, Szwak, & Winchell L.L.P., 592 F.3d 664, 668-69 (5th Cir. 2009) (questioning whether equitable mootness applies in chapter 7 cases).

For the time being, the existing law in Connecticut is that its new homestead exemption protecting up to $250,000 in equity in a primary residence from the claims of the homeowners creditors is available to assert as against such claims whether they arise before or after October 1, 2021. This is a significant benefit for Connecticut homeowners who find themselves in troubled financial condition.

The author of this alert appeared in the appeal of the Purdue Pharma confirmation order to the District Court for the State of Connecticut and several other appealing States.

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Connecticut Bankruptcy Courts Rule That New Homestead Act Applies Retroactively to Claims Arising Before Acts Effective Date - JD Supra

WHEN contemplating bankruptcy as a way out of debt, one is often faced with the question: What would my life be like after I file bankruptcy? When can I have credit again? Will I be shut out of the American dream forever or is it nothing more than a fresh financial start so I can start dreaming of a secure financial future once again?

These are important questions and not to be taken lightly because filing bankruptcy is often a serious decision with consequences. The question is: Will the consequences be against me or in my favor in the long run? So, it really often comes down to a cost-benefit analysis.

Filing a Chapter 7 bankruptcy is a short process that only lasts 4-5 months for most people. Of course, if your budget was already tight before filing, without obtaining any additional income, the situation does not change except for the fact that getting rid of debt payments now allows you to prioritize your spending by putting your needs first. People in survival mode who live paycheck to paycheck are often forced to sacrifice their own needs just to keep up with the bills. Even worse, they resort to borrowing to account for the shortfall which even puts them in a bigger financial hole each month. Chapter 7 allows you to wipe out debts you can no longer afford to pay so you can have more disposable income available to meet your monthly living expenses.

In Chapter 13, depending on your ability to pay, you may or may not need to pay all your debts. And the ones that dont get paid are also often wiped out at the end of the repayment period which could be anywhere from 36-60 months. I see a lot of people who owe so much that if they only paid the minimum amount due each month, they are bound to be in debt for the rest of their lives. They seem to think that they are doing OK as long as they are able to make minimum payments. But they dont realize the lost opportunities caused by enriching their creditors instead of saving their hard-earned money for themselves and their families. Imagine what it would be like if you were debt-free. Perhaps you can finally start saving for your kids college education, put money into your employers 401K plan, save money for an emergency fund, etc. The list of possibilities is endless.

What holds people back from filing bankruptcy although they really need it is the stigma often associated with bankruptcy. They have heard from their friends and family that bankruptcy is the worst thing that you can do and that your life will never be normal again. Hogwash. After having represented more than 6,000 clients in bankruptcy over the last 23 years, I can say that without our bankruptcy laws, a lot of people will never be able to get out of debt on their own. While no one ever wants to file bankruptcy, in a lot of cases Ive handled, there is no other way to get out of the financial mess they are in. Filing Chapter 7 stops all collection actions against the debtor, protects wages, bank accounts, property, and other assets- allowing the person to breathe again instead of dealing with all the financial stress and having sleepless nights. Most of my clients rebuild credit in only 2-3 years, allowing them to buy cars, homes, etc. as if they never filed bankruptcy at all.

Rebuilding credit after Chapter 13 takes longer because until you make your last payment, you are technically in bankruptcy and you do not get a discharge. But dont let this discourage you because in Chapter 13, your debt payments can be significantly lower than what you are paying now, you are paying 0% interest on credit cards and most debts, and you have A DEFINITE DATE by which you will be debt-free. It is best to have a long-term perspective when filing a Chapter 13 case. Most people dont even have a plan. They go through life just hoping that somehow, someday, things will get better. But without a plan, you will never get there. Chapter 13 is a reorganization plan that allows you to consolidate and reduce your debt. It can be a useful tool in setting financial goals that you can stick to.

If you need bankruptcy relief but are afraid that bankruptcy may do you more harm than good, call my office so that we can discuss your situation if bankruptcy might be right for you.

* * *

NOTE: Due to the pandemic, consultations via phone or video are available. Please call the office at 866-477-7772 to schedule your appointment with me. Questions? Email me at gethelp@rjb-lawoffices.com.

* * *

None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 5,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-477-7772.

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[COLUMN] Is there life after bankruptcy? - Asian Journal News

Introduction

The Insolvency and Bankruptcy Board of India (the Board) vide its circular no. IBBI/2022-23/GN/REG084 dated 14 June 2022, in exercise of the powers conferred under clause (t) of sub- section (1) of section 196 read with sections 7, 9 and 240 of the Insolvency and Bankruptcy Code, 2016 (the Code) has introduced the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022 (Amendment Regulations).

Amendments

The Key amendments introduced by the Amendment Regulations are as follows:

provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed:

Provided that this clause shall not apply to any resolution plan that has been submitted to the Adjudicating Authority under sub-section (6) of section 30 on or before the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022.

Comments

Conclusion

The Amendment Regulations provide for much needed changes and appear to have been prepared after considering the difficulties faced by stakeholders in a CIR process. The provisions dealing with flow of information to the IRP/RP may help in enhancing the speed and efficacy of the CIR Process. Interestingly, the amendment related to a resolution plan having a provision for dealing with avoidable transactions and the proceeds thereof shall not be applicable to plans which have been submitted to the adjudicating authority, however, if plans have been approved by a committee of creditors but not submitted to the adjudicating authority, they may have to be modified for dealing with this requirement. This would have to be seen in view of the earlier amendments which mandated that a plan could be modified only once.

The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at [emailprotected].

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ERGO Analysing Developments Impacting Business: Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second...