What is an adversary proceedings?

Bankruptcy can be very contested and when there is a contested matters, it gives rise to complaint which needs to be adjudicated by bankruptcy court. Contested matters, if they are smaller in nature, can be handled by motion. There is no fee required for motion and a quick hearing can be done by the bankruptcy judge. However, if the contested matters is serious, it can be adjudicated via filing of an adversary proceedings. An adversary proceeding is a separate civil proceeding within the bankruptcy proceeding. Here, the plaintiff files a separate complaint, along with a filing fee, and serves the named defendant via summons and service of summons executed and filed with the court. The responding party or the defendant responds via an answer. The proceedings results in a judgment which can be entered and executed against the losing party. Again, adversary proceedings are handled much more formally and modeled on the federal rules of civil procedure.

How many types of Adversary Proceedings?
Rule 7001 handles matters regarding adversary proceedings. Any proceeding to recover money or property requires filing of an adversary proceeding.

– Any proceeding to decide the validity, priority, or extent of either a lien or some other interest in property requires an adversary proceeding.
– Any attempt to either have the debtor denied a discharge or have the debtor’s discharge revoked requires an adversary proceeding.
– Any attempt to obtain approval to involuntarily sell the interests of both the debtor and a non-debtor co-owner in property free and clear of the co-owner’s interest requires an adversary proceedings.
– Any proceedings to determine whether a debt is dischargeable requires filing of an adversary proceeding.
– A proceeding to obtain a declaratory judgment with respect to any of the matters which goes to the core of bankruptcy requires filing of an adversary proceeding.

The Complaint
One can say that an adversary proceeding is inherent in a trial. It is a civil litigation conducted within the context of a bankruptcy case. An adversary proceeding is commenced with the filing of a complaint. The complaint must be accompanied by a filing fee.

The Summons and Other Pleadings The summons are issued by the clerk and the plaintiff is required to serve the summons issued by the clerk and a copy of the complaint shall be served on all the defendants. The summons must be served or mailed within 14 days of the time it is issued or a new summons must be obtained.

Answer
The Answer in an adversary proceedings should be ready in the same way as an answer in any other federal civil proceedings.

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How to Challenge Any Foreclosure in Nevada?

How to Challenge Wrongful Foreclosure in Nevada
This is not a term paper or an extensive legal thesis but just some analytical and factual discussion for Nevada homeowners to know their capabilities how to challenge an imminent foreclosure. One must know here the rules of mediation in Nevada. If, however, the mediation is not granted and not applicable here, one can take all these steps or one of them, and not in any particular order. This is prepared for general awareness, and not meant as a legal situation. Each situation is different and this whole set of steps may not work for individual case. This is your home, please do not hesitate to fight and hire an attorney. This is one important part of your life where you should not shy away from spending money. Again, this is a brief guide for lay persons about how to challenge foreclosure successfully in Nevada. As usual, always consult a legal counsel licensed in your jurisdiction, and never someone who is barely familiar or paralegal because these are very complex issues even for the courts to decide. Enjoining foreclosure is difficult yet not impossible. Let us see what possible steps a Nevada homeowner, who is deep under water, can take. It can be one or more step:

• Filing Bankruptcy before Foreclosure Occurs
• Suing to Enjoin Foreclosure before It Occurs
• Suing to Set Aside a Foreclosure that Has Already Taken Place
• Filing a Counterclaim in the Detainer Action after Foreclosure Has Occurred
• Filing Bankruptcy after Foreclosure
• Procedural Grounds for Challenging the Foreclosure • Substantive Grounds for Challenging the Foreclosure

Filing Bankruptcy before Foreclosure Occurs
This is often the shortest and simplest procedure. You can hire a bankruptcy attorney. Our firm is also great help in this matter. Law Office of Malik Ahmad has extensively dealt with various foreclosure issues as well as loan modification and Law Office of Malik Ahmad has a very strong tract record in this regard. One thing you should avoid is not to do yourself or hire a paralegal. Because the courts (deep down in their heart) frown at your own representation and the paralegal. Because both of them slows the process and jam the wheels and court does not like it. It has the following advantages: a bankruptcy filing automatically prevents foreclosure temporarily and sometimes permanently. Again, you have the opportunity to cure a default in your payments by paying the delinquent amount in installments over a reasonable period; you may be able to reduce or eliminate the fees of the lender’s attorney; and you may be able to avoid interest on the amount you are delinquent (though not interest on the loan itself). You may file a counter motion if there is a motion to lift the stay requested by creditors’ attorney. There is no procrastination required, these are the steps you had to take. One more advantage is that you can get rid of most of the unsecured debts. The obstacles again are if you can pass the means test, and otherwise qualified under the Nevada Median Income rules.

Suing to Enjoin Foreclosure before It Occurs
To obtain an injunction, you must file a complaint in a court. You will need a lawyer. You need to get a hearing date, and time from the court. Call the clerk and get a hearing date, and place it on the calendar. Make sure that there is still time left before the due date of your foreclosure. You need to serve the copy to the lender, creditor, or whoever has your mortgage papers. We are enclosing a sample Memorandum for Injunction here. Again, this is just a sample and purely for education purpose.
Temporary injunctions require a “clear” showing of “immediate and irreparable injury, loss or damage” or “that the acts or omissions of the adverse party will tend to render [the] final judgment ineffectual.” Judges take this need seriously.
The most difficult requirement of all may be the need to give a bond “in such sum as the court … deems proper” unless you successfully obtain permission to bring the action as an indigent person. A homeowner with only modest amounts of other assets and income may be unable to qualify as indigent and may also be unable to find anyone willing to provide a bond, especially one on short notice. However, Nevada courts may seeks small bonds and sometime it is less than $500.

Suing to Set Aside a Foreclosure that Has Already Taken Place The grounds for setting aside a foreclosure are limited to “some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price.” Defenses like the absence of a delinquency or violations by the lender of federal or state commercial law may not be raised.
Again, you have the burden of proof in a lawsuit to set aside a foreclosure. It requires lots of proof of violations of both TILA and RESPA. For more accurate version, please see the loan modification blog of Attorney Malik Ahmad. Damages are the only remedy. There is nothing to prevent a third-party purchaser from keeping your house even if he knows of your claim against the lender and even if he believes that your claim is meritorious.
Filing a Counterclaim in the Detainer Action after Foreclosure Has Occurred
Foreclosure may be challenged by a counterclaim when the lender (or other new owner of the property) seeks possession by a “detainer” action. It is better to file the counterclaim in writing, and the grounds for doing so are discussed below. It is preferable that you use a lawyer to assist you, but most persons do not.

There is an initial problem. A statue says: “The estate, or merits of the title, shall not be inquired into” in a detainer action. Lenders may assert that a wrongful foreclosure may not be challenged even when the parties are before the court on the issue of possession, the right to possession is necessarily founded on ownership, and ownership depends on the lawfulness of the foreclosure. In our view, the statute disallows only attacks upon title based on transactions prior to the creation of the deed of trust. We also believe that the statute is inapplicable to counterclaims seeking to set aside a foreclosure, even if it bars defenses to the detainer action.

Who is a Real Party-In-Interest?
Not every new owner is successful in obtaining possession. It may overlook the proof that is necessary to show that it the foreclosure was conducted properly and that it was entitled to foreclose — things like affidavits or testimony showing that you did not make timely payments. You may and should contest every assertion made by the new owner, even if you do not have a lawyer. The new owner has the burden of proof. If it fails to meet that burden, the judge may conclude that you are entitled to remain in possession even though you no longer own the home.
On the other hand, if the new owner is successful in the detainer action, it is entitled not only to possession but also to the rental value of the property from the date of foreclosure until the date of removal. You have only ten days for an appeal. Just recently there have been major changes in landlord-tenancy relationship both in federal and state laws. Again, we continuously update on our blog and websites.

Filing Bankruptcy after Foreclosure
It is possible to set aside the foreclosure through the bankruptcy process. The grounds that may be asserted are discussed below.
There is some good news even if you lose the challenge; bankruptcy usually discharges all or part of a deficiency judgment against you for any amount still due after the foreclosure occurs.

Procedural Grounds for Challenging the Foreclosure
Failure to Give Personal Notice. No personal notice to a borrower is required by statute. However, we believe that federal and state constitutions require personal notice to each borrower, either by summons or by certified mail that is actually received, and we are litigating cases so as to establish this principle. There are whole set of notice requirements provided under various Nevada notice statutes.
Insufficient Notice by Newspaper Publication or Posting in Public Places. Under Nevada statutes, advertisement of a foreclosure sale must be made three different times in “some” newspaper “published” in the “county where the sale is to be made.” Only 20 days’ notice is required, and the use of publications read almost exclusively by lenders and lawyers is permitted. Both the shortness of the time and the use of obscure newspapers seem vulnerable to constitutional objection. In addition, some counties have no eligible newspapers. In this case, written notice may then be posted in five “of the most public places in the county.” There is no guidance about what such places are or how they are to be determined. This is too vague a standard to pass constitutional muster.
Failure to Give Notice Required by the Deed of Trust. Many deeds of trust require notice of foreclosure by certified mail, or at least by mail, in addition to notice by newspaper publication. Many also require notice — before foreclosure is sought — that the entire sum has been declared to be due because of a late payment or other default.
Nevada legislature just passed AB 149 which mandates mediation before foreclosure. Please see an attorney to find out the latest rules about mediation. Please do not in any case get the help of your loan officers. I have seen many loan officers, or some paralegals destroying a very good chance for loan modification for Nevada homeowners.
No Meaningful Opportunity to Dispute the Foreclosure. This too is a constitutional challenge to Nevada’s foreclosure process. It is based on the notion that making you find a lawyer and file a lawsuit in 15 days, assume a high burden of proof, and furnish a bond are unfair hurdles imposed on you.
Defects in the Foreclosure Sale. Nevada judges have said that the foreclosure must occur in the county in which the property is located; it must take place at an accessible location; and a lender may not use a purely technical default as a basis for foreclosure. However, when the lender demands the full amount of the debt, they have refused to let the borrower cure the delinquency by paying the disputed amount before the time the foreclosure occurs. They also have ruled that there is no minimum price that must be paid and have allowed the lender to recover a deficiency judgment if the amount received in the sale is less than the amount owed. They have yet to decide whether the combination of a shockingly low price and another procedural defect are sufficient to disallow the foreclosure.

Substantive Grounds for Challenging the Foreclosure
There are innumerable federal guidelines which must be observed by the lenders before foreclosure. The whole list is outside the scope of this article. However, the following claims and defenses are among those that may be raised so as to defeat a foreclosure altogether or reduce the amount of any deficiency:
Late Payments Were Accepted on Other Occasions. This suggests that the lender waived the right to refuse late payments and was estopped from foreclosing.
The Lender Refused to Supply a Pay-Off Amount or Accept Full Payment so Foreclosure Could Be Avoided. Despite unfavorable precedent, this could be a viable ground.
A Borrower was in Military Service at the Time of’ the Foreclosure. If the borrower was actively on duty in Afghanistan, or Iraq, he is fully protected under this clause.
The Loan was Unconscionable. That is, the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and the terms are so oppressive that no reasonable person would make them on the one hand. No honest and fair person would accept them on the other.
• The Making of the Loan, or the Servicing of It, was Riddled with Unfair and Deceptive Practices that Violated the Nevada Consumer Protection Act.
• The Services Collected Unauthorized Fees for the Escrow Account, or as Late Charges, or as Attorney Fees during the Foreclosure Process.
• One Spouse Was Required to Sign the Mortgage Note even though the Credit of the Other Spouse was Sufficient.
• One or More Borrowers Lacked the Mental or Physical Capacity to Borrow.
• The Mortgage Broker Was Paid an Unlawful Sum by the Lender.
• The Lender Violated a Relationship of Trust with the Borrower that Developed in the Lending Process.
• There Was Fraud or Misrepresentation by the Lender in the Making of’ the Loan.
A trial loan modification was approved, the homeowners fulfilled all the terms of the trial loan modification and lender backed out from the affirmative contractual obligations.

How Can You Continue Owning Property via Bankruptcy?

You may own property by reaffirming a debt, but only if the individual creditor allows it. However, you are promising to pay to pay the creditor by continuing to stick with the original payment plans and not missing anything. That is called reaffirmation. However, if you later default, the creditor can come and repossess the property and sue you for the deficiency.

Stopping a Nevada Mortgage Foreclosure Using Chapter 13
Mortgage foreclosure in Nevada can be stopped in only two ways. The mortgage lender can voluntarily stop the foreclosure proceeding, or you can file a Chapter 13 bankruptcy. The third choice is loan modification but it is a voluntary act, and you had tried with your lender for many months and it did not work.

Generally, you will find that mortgage companies will not voluntarily stop foreclosure proceedings. Under Nevada law, a mortgage company can start foreclosure proceedings once you are placed into default status because of missed payments. Usually, mortgage companies will wait until you are two or three months behind before they put you into default status and accelerate the mortgage. Acceleration means that the mortgage company has declared the entire payoff balance due and payable.

Because mortgage companies are subject to federal and state banking regulations, changing the status of your account from delinquent and accelerated back to “current” is complicated and time consuming. Further, a “delinquent and accelerated” mortgage account will be referred to a foreclosure law firm that has its own case management process. Once the foreclosure process starts, our experience has been that most mortgage companies are not set up to arrange side deals with consumers who promise to cure delinquencies on a case by case basis. Truthfully, they would refer you to the foreclosure attorney whose rules and prices are rigid and they do not bend and single handedly determined to continue foreclosure against you.

You May Lose Your House to Foreclosure in Las Vegas as early as 35 Days After Foreclosure Notice is Published.

Nevada allows non-judicial foreclosures, which means that your mortgage company and its foreclosure lawyer do not have to go before a state court judge to obtain permission to take title to your house through a foreclosure. Instead, they need only advertise a notice of the pending foreclosure sale of your property three times in a newspaper published in the county where the foreclosure sale is to be made, with the first publication at least twenty (20) days prior to the sale.

If you are living in the house being foreclosed upon, a notice of the proposed sale must be served upon at least 20 days prior to the proposed sale. Further, many notices would be send to each spouse, tenant, and at your current address. This foreclosure notice serves to give you official notice of your right to redeem the property by paying the entire balance due. This notice also advises you that your property will be sold on the courthouse steps within a few weeks of the date on the foreclosure notice.

Once your account has been referred to a foreclosure law firm, therefore, Chapter 13 bankruptcy remains your most realistic option for saving your home. Chapter 13 will stop any pending foreclosure up until literally the minute before your property is sold on the courthouse steps. It does not matter that the auctioneer may not have actual notice of your Chapter 13 filing. Unless the bankruptcy court has ruled to limit the applicability of the bankruptcy stay in your case, your Chapter 13 filing will invalidate any foreclosure sale.

You should know that:
-Reaffirmation a debt is a serious financial decision. The law requires you to take certain steps to show and demonstrate that you understand the implications and financial obligations of reaffirmation is in your best interests. If these steps are not completed, the reaffirmation agreement is not effective, even though you have signed it.
– You may rescind your reaffirmation agreement anytime before the bankruptcy court enters a discharge order, or before the expiration of the 60-day period that begins on the date your reaffirmation is filed with the court.
-Remember, reaffirmation papers are very long and complex papers.
– Reaffirmation of debts other than home mortgage must be approved by the debtor’s lawyer or the court.

Should filing bankruptcy be an embarassment?

Nevada is again leading the nation in the numbers of filing of bankruptcy. Now, even the formerly middle class is filing for bankruptcy. As a consumer law attorney, I had increasingly seen dentists, doctors, schoolteachers and even lawyers filing for bankruptcy. It does not carry the stigma it once did. However, it is still a devastating experience for many people, especially those who never imagined going bust. For starter, it is an emotional matter as folks thinks that they are losers and could not catch up with their bills, or could not manage the money and balance their budget. For the most part is true. I see from their credit reports that most of the expenditures were avoidable initially but mushroomed due to higher interest and lack of the will to pay and reduce the principal. Along the way, the debtor lost their job, and piled up medical bill. Now, the total fiasco is complete, and filing bankruptcy is the only option.

We are seeing an increasing phenomenon where people who have never failed in their life, not in elementary school or junior high or high school or college, are failing in a fundamental way to manage their money properly and file for bankruptcy. It is like a colossal failure to manage their financial affairs. Of course, it has a lot to do with the current and unending home foreclosure crisis.

Nevada’s foreclosure laws also play a significant role in driving up the rate. The state’s foreclosure process occurs without court or government supervision and takes only weeks. No state has a faster foreclosure process. A bankruptcy filing is the only realistic option for most Nevadans seeking to delay a public auction of their homes.

It is nothing to be ashamed of bankruptcy anymore as this is a financial decision and has nothing to do with morality. However, even “forgiving” your debts has been provided in all the holy scriptures and it does have a religious foundation. Now, middle class clients are finding themselves in huge deficits, debt loads, and the imminent prospects of a Chapter 7 or Chapter 13 filing. I am surprised even police officers are filing for bankruptcy.
My observation in this regard is that a typical Chapter 7 debtor or chapter 13 debtors have the following characteristics:
• a homeowner
• Caucasian
• annual income of $45,000
• credit card debt of $41,000
• mortgage and car payment totaling $2,600 per month
• average credit score of 541
• negative net worth of $90,000

As I had written in my earlier posts, it is not advisable to borrow from your 401 (k) accounts as this incur heavy penalty and the debt payment is not considered a “debt” under the Bankruptcy Code. Filing for bankruptcy is your entitlement to exercise your federal rights and it should not be based on emotions or opinions but purely on financial data and your ability to catch up. If you cannot catch up on a sizable debt loan, there should be no hesitation in filing bankruptcy and seeing an attorney for consultation. One should not see embarrassment as a barrier in seeking your federal rights. Your bankruptcy should be a financial decision and not one based on embarrassment to your self.

Stop Using Credit Cards If You Are On The Verge of Filing Bankruptcy

Few days ago, a couple came to me and I pulled out their credit report. They were heavily indebted to various credit cards. They pressed me to file bankruptcy immediately. Once I told them that their credit cards has still some balance, they wanted to come back again and file. I told them what is the reason of their change of mind. They told me that they wanted to use the balance in their credit cards and then come back and file bankruptcy. I was surprised on their logic. They were acting upon the logic of their co-worker who did use his balance before filing bankruptcy. I told these folks that it would be an abusive practice and would violate the bankruptcy Code.

What is an abusive practice?
The U.S. Bankruptcy Code at 11 U.S.C. § 523(C) sets forth evidentiary presumptions allowing the bankruptcy trustee or an individual creditor to automatically presume a particular credit card purchase or cash advance is non-dischargeable. If the presumption applies and is not rebutted with evidence introduced by the debtor, the debtor will continue to owe that particular debt.

Specifically, the code states that a debtor’s discharge will exempt the following from the discharge:

(I) consumer debts owed to a single creditor and aggregating more than $600 (as of April 1, 2010) for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be non-dischargeable; and

(II) cash advances aggregating more than $875 (as of April 1, 2010) that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be non-dischargeable.

As a result of 11 U.S.C. § 523(C), debtors are advised to make no purchases on credit cards in the three months (90 days) before their bankruptcy filing in order to ensure that the above presumption does not attach, and significantly reduces the likelihood that the trustee or a creditor will object to the discharge of a particular debt.

Unfortunately, sometimes it is not possible to wait the full 90 days. Some debtors need to seek the protection of the Bankruptcy Court to prevent foreclosure, to stop a pending lawsuit, or prevent repossession of a particular secured asset. In these cases, many debtors will have made recent purchases within the 90-Day period. It is important to discuss these purchases with your bankruptcy attorney, as things like travel, vacations, electronics or computer purchases may all be deemed “luxury” under the statute. However, you may have a case if they are used for “necessity” and not for luxury goods, or gambling debts.

At the §341(a) meeting, nearly all Chapter 7 Trustees in Nevada will ask whether a creditor has “used any credit card in the past 30 days prior to filing bankruptcy”. The trustee is attempting to evaluate the likelihood that an 11 U.S.C. § 523(C) Complaint to Object to Discharge will be filed. While use of credit cards in the 30 days prior to filing is not proof of abuse (and grounds for non-dischargability), it would raise the trustees suspicions that further investigation is warranted. We recommend strongly against the use of credit cards for 90 days or longer before you file bankruptcy in Nevada. One should be careful of using credit cards at least 6 months prior to the filing of chapter 7, and it is even better if the debtor stops using altogether at least one year prior to filing of bankruptcy.

Should You Borrow From Your 401 K Retirement Plan? Absolutely No

As well know and while working as a consumer bankruptcy attorney (www.fastbankruptcynevada.com), I had come across many clients who continuously withdrew from their 401K plan and now have totally emptied it. As we know, 401K is your retirement plan, and it should be kept for that purpose only. Withdrawing from your 401K Plan is the most fundamental mistake which many clients are making. Again, this 401 K is exempt assets and bankruptcy cannot liquidate or one has to surrender this asset to trustee. It is part of the exempt assets which a debtor can have. Again, bankruptcy may be the last resort but one should resist the temptation of borrowing from one’s 401 K plan. I hate to see these clients when they come to my office and had already exhausted their savings especially their 401 K Plan. Not only that they have borrowed from payday loans, and now have hefty liabilities to begin with.

The economy is tough and we are reaching a point of desperation and sometime a point of no return. But one should always seek qualified legal help, and we are here to help you. As you may know, we offer free consultation and sometime same day consultation. Call us at (702) 270-9100 if you have reached that point of desperation and making wrong decisions. You would not know it until you talk to someone with profound legal knowledge in this area. Don’t borrow you’re your Retirement Plan. I would rather you prefer to borrow from a payday loan than to borrow from your retirement plan.

Bankruptcy trustees, however, look at 401(k) loans in a different light. They see any allocation to repay a 401(k) loan (and sometimes any ongoing contribution to a 401(k) plan) as an unnecessary reduction of disposable income that would otherwise be available to pay creditors. 401(k) loan payments cannot be counted as allowable deductions in your means test calculations. And Chapter 7 and Chapter 13 trustees and/or creditors will often object if you include a 401(k) loan repayment allocation in your Schedule I and J budget in either a Chapter 7 or Chapter 13.
Let me give this citation here about:

No Means Test Deduction for 401(k) Loan Repayment
American Bankruptcy Institute Law Review Staff
Recently, in In re Egebjerg, the United States Court of Appeals for the Ninth Circuit dismissed, as abusive, a debtor’s chapter 7 petition because it found that the payments owed to the debtor’s 401(k) were not debt and thus, the debtor had excess disposable monthly income.[1] In 2004, the debtor borrowed money from his 401(k) to keep up with financial obligations and personal expenses. To repay the money owed to his 401(k), the debtor had his employer deduct $733.90 from his monthly paycheck. In 2006, the debtor had $31,000 in unsecured consumer debt and filed for chapter 7.[2]
Chapter 7 debtors must pass the “means test” to be entitled to relief under chapter 7.[3] The means test looks to debtors’ disposable monthly income to determine if they have enough money left each month to pay back a significant portion of their debt.[4] In In re Egebjerg, the debtor argued that his disposable monthly income was $15.31, after his employer deducted $733.90 per month to repay the debtor’s 401(k) loan.[5]

Section 707 provides that disposable monthly income is calculated by deducting “secured debt” and “necessary expenses” from monthly income.[6] The Ninth Circuit, aligning with the majority of circuits, reasoned that money owned on a 401(k) loan is not secured debt and thus could not be deducted from monthly income to calculate disposable income.[7] To be secured debt, there must be “liability on a claim,”[8] and someone must have a “right to repayment.”[9] When a debtor owes money to his or her retirement account, a debtor-creditor relationship does not exist because there is no liability on a claim or right to repayment; the money owed only reduces a debtor’s retirement savings.[10]
In addition, 401(k) loan repayments were not “necessary expenses” under the means test.[11] Courts look to the categories listed by the Internal Revenue Manual to determine what qualifies as a necessary expense.[12] Only expenses that fall under one of the listed categories can be deducted from monthly income in performing the means test.[13]
In some instances, a debtor that fails the means test can proceed under chapter 7 when there are “special circumstances.”[14] Although the majority of courts have held that repaying a retirement account loan is not a special circumstance,[15] the Ninth Circuit suggested that additional circumstances, such as a “life altering” event[16] or borrowing money for a serious medical condition, would be a special circumstance.[17] Here, the debtor did not demonstrate a special circumstance.[18]
Further, Congress did not intend for retirement loan repayments to be deducted under the means test.[19] When Congress amended the Bankruptcy Code in 2005, it was aware of case law that explained that retirement account loans were not considered debt. Notably, Congress did not expressly provide for retirement account loans to be considered debt.[20]
In the current economic climate, individuals continue to borrow money from their retirement savings to keep up with their creditors. However, chapter 7 proceeding are not meant to protect individuals from poor financial planning, specifically those who decide to borrow money from their retirement savings.[21] In 2005, BAPCPA was passed to promote personal accountability and prevent abuse of the bankruptcy system.[22] In re Egeberg demonstrates BAPCPA’s strict approach to determine if a debtor’s financial situation permits him or her to file for chapter 7 relief.[23]
________________________________________
[1] See Egebjerg v. Anderson (In re Egebjerg), 574 F.3d 1045, 1053 (9th Cir. 2009) (affirming, on direct appeal, decision of bankruptcy court).
[2] Id. at 1047.
[3] See 11 U.S.C. § 707 (b)(2)(A)(i) (2006).
[4] See In re Egebjerg, 574 F.3d at 1048.
[5] Id. at 1047.
[6] See 11 U.S.C. § 707 (b)(2)(A)(i)–(iii) (2006) (calculating disposable monthly income using precise mathematical formula).
[7] See In re Egebjerg, 574 F.3d at 1049; see also Eisen v. Thompson, 370 B.R. 762, 769 (N.D. Ohio 2007) (noting 401(k) is not secured debt and this is majority view); In re Esquivel, 239 B.R. 146, 152 (Bankr. E.D. Mich. 1999) (finding clear consensus loans from retirement accounts are not considered debt).
[8] 11 U.S.C. § 101(12) (2006).
[9] 11 U.S.C. § 101(5) (2006).
[10] See In re Egebjerg, 574 F.3d at 1049.
[11] Id. at 1051.
[12] See IRM 5.15.1.10 (2009).
[13] 11 USC § 707 (b)(2)(A)(ii) (2006).
[14] See 11 USC § 707(b)(2)(B) (allowing presumption of abuse to be rebutted under special circumstances such as active military duty or serious medical condition).
[15] See In re Smith, 388 B.R. 885, 888 (Bankr. C.D. Ill. 2008) (determining repayment of retirement loan is not special circumstance absent other factors such as serious medical condition).
[16] Egebjerg v. Anderson (In re Egebjerg), 574 F.3d 1045, 1053 (9th Cir. 2009) (articulating special circumstances do not include poor financial planning).
[17] See 11 U.S.C. § 707(b)(2)(B)(i) (2006) (allowing debtor to rebut presumption of abuse in special circumstances).
[18] See In re Egebjerg, 574 F.3d at 1053.
[19] See In re Turner, 376 B.R. 370, 376 (Bankr. D.N.H. 2007).
[20] See Eisen v. Thompson, 370 B.R. 762, 771 (N.D. Ohio 2007).
[21] See In re Egebjerg, 574 F.3d at 1053.
[22] H.R. Rep. No. 109-31, at 4 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 91 (seeking to deter abusive and serial filings of bankruptcy).
[23] In re Egebjerg, 574 F.3d at 1048.

What a Discharge of Chapter 7 Means?

The court order grants a discharge to the person named as the debtor. It is not a dismissal of the case and is does not decide how much money, if any, the trustee will pay to creditors.

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor.There are also special rules that protect certain community property owned by the debtor’s spouse, even if that spouse did not file a bankruptcy case. A creditor who violates this order can be required to pay damages and attorney’s fees tot he debtor.
However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtor’s property after the discharge, if that lien was not avoided or eliminated in the bankruptcy case. Also, a debtor may voluntarily pay any debt that has been discharged.

Debts that are discharged.The chapter 7 discharge order eliminates a debtor’s legal obligation to pay a debt that is discharged. Most, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed.
Debts that are not discharged.

Some of the common types of debts which are not discharged in a chapter 7 bankruptcy case are:
a. Debt for most taxes;
b. Debts incurred to pay nondischargeable taxes;
c. Debts that are domestic support obligations;
d. Debts for most student loans;
e. Debts for most fines, penalties, forfeiture, or criminal restitution obligation;
f. Debts for personal injuries or death caused by the debtor’s operation of a motor vehicles, vessel, or aircraft while intoxicated.
g. Some debts which were not properly listed by the debtor;
h. Debts that the bankruptcy court specifically ally has decided or will decide in this bankruptcy case are not discharged;
i. Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements for reaffirmation of debts; and
h. Debts owed to certain pension, profit sharing, stock bonus, other retirement plans, or to the Thrift Savings Plan for federal employees for certain types of loans from these plans.