Thursday, December 5, 2013

Detroit Bankruptcy – Pensions Aren’t Protected From Cuts

Retirees like Gwendolyn Beasley, 67 years old, who worked 34 years for Detroit as a library clerk has an annual pension of $13,085. Ms. Beasley’s pension could be decimated in the very near future.

A judge declared Detroit eligible for bankruptcy and ruled that pensions aren’t protected from potential cuts. Five months after the city filed for Chapter 9 protection, U.S. Bankruptcy Judge Steven Rhodes said Detroit was entitled to reorganize under bankruptcy law, describing his ruling as a “fresh start” for the city.

Judge Rhodes said Detroit’s public pension holders aren’t entitled to special protection from potential cuts – despite a Michigan state constitutional provision aimed at shielding pensions. “Pension rights are contract rights under the Michigan constitution” and contracts are at risk for cuts under federal bankruptcy law.

Detroit plans on unveiling a proposal in January 2014 to restructure its estimated $18 billion in long-term debt, which makes it the largest-ever municipal bankruptcy in U.S. History.

The city’s unfunded pension liability has been estimated at between $3.5 billion and $8 billion.  The pension funds would undoubtedly receive only a fraction of what they are owed. The pension cuts will have a devastating on city employees and retirees who hoped state law would protect their pensions.

Monday, December 2, 2013

Discharging Cyber Monday Purchases in Bankruptcy

Thanksgiving and Black Friday shopping brought in an estimated $12.3 billion in sales, according to shopping analytics firm ShopperTrak. Overall spending was expected to reach $57.4 billion for the weekend, according to the National Retail Federation.

Can You Discharge Recent Shopping Purchases in Bankruptcy?

The best advice is to consider limiting your shopping to a minimum to avoid any problems with your upcoming chapter 7 bankruptcy case.

There are also a few guideposts to consider contained within the bankruptcy code itself:

1. Cash advances in excess of $875.00 within seventy (70) days of the bankruptcy filing, are nondischargeable.

2. Purchases from a single retailer or service provider exceeding $600.00 for “luxury goods or services” within ninety (90) days of the bankruptcy filing, are nondischargeable.”

What Happens if the Retailer files an Objection to my Case?

Purchases within the above time periods often end up motivating the retailers to file an adversary proceeding in bankruptcy court.

An adversary proceeding contesting dischargeability is essentially a federal lawsuit brought within a bankruptcy. A retailer argues that the debts purchased are non-dischargeable because the bankruptcy code contains a statutory presumption that cash advances are nondischargeable within 70 days and consumer luxury goods are nondischargeable within 90 days.

It is important to note that the statutory presumption simply shifts the the burden from the retailer to the debtor. The debtor is free to rebut the presumption and argue that they DID NOT incur the debt in contemplation of bankruptcy. Generally, evidence establishing that the debtor did not incur the debt in contemplation of bankruptcy will suffice to rebut the presumption.

For instance, a sudden shift in the debtor’s financial circumstances may be sufficient to rebut the retailers contention that the debtor never intended to pay the debt back in the first place.

The Debtor’s Subjective State of Mind

The key issue in a dischargeability hearing rests upon the debtor’s subjective state of mind. For instance, rebuttal evidence illustrating that the debtor had a sudden change in circumstances, or that the debtor did not contemplate filing for bankruptcy until after the debtor took the cash advances, or that the debtor had the subjective intent of repaying the debt at the time the cash advances were obtained.