GARNISHMENT RECAPTURE BY THE DEBTOR. by Harry B Zornow

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1 GARNISHMENT RECAPTURE BY THE DEBTOR by Harry B Zornow Debtor filed a bankruptcy because of a wage garnishment. Over $2, has been garnished from Debtor's wages within 90 days of the filing of the petition. A chapter 7 or 13 is filed. The Chapter 7 Trustee want to collect the preference. The Chapter 13 Trustee does not want to collect the preference, but wants the liquidation value increased and therefore the plan percentage. See In Re Engle 496 BR 456 (SD OH 08/09/2013) Can the Debtor recapture the garnished funds? Yes. Free and clear of any claim of the Chapter 7 or Chapter 13 Trustee? Yes Does the Debtor have to increase the Liquidation value in Chapter 13?- Maybe 522 ~,)~h), (i~(j) ; Underused and Unappreciated A review of these 4 provisions, establish that a Debtor can avoid a transfer to the extent that it is The transfer is not voluntary (Garnishment is not voluntary) 2. The transfer was not concealed (The Garnishment should be listed on Statement of Financial Affairs or Amended Statement of Financial Affairs is filed) 3. The trustee does not attempt to avoided the transfer (No Asset Report? Abandonment? Chapter 13 Plan Provision) 4. Only to the extent that the Debtor has exempted less property in value of such kind that than to which the Debtor is entitled. (Huh? & Dang!) In the above example, Debtor only has $ left in the wildcard or cash exemption. At the moment, it would appear that Debtor can only avoid the preference to the extent of $ The Wage Exemption ;Also Underused and Unappreciated Could the Debtor use the wage exemption is this situation? I opine that the Debtor is eligible to claim this exemption. The wage exemption contained in (a)(13) provides in part as follows: Except as provided in sections , , , ,and of the Revised Code, personal earnings of the person owed to the person

2 for services in an amount equal to the greater of the following amounts: (b) Seventy-five per cent of the disposable earnings owed to the person. "[OJwed to the person" language does not limited the ability of Debtor to exempt funds paid or received. See Daugherty v Central Trust 28 Ohio St 3d 441 (1986) at 445 and its progeny. The very few people in this room who are older than me, will remember that a previous version of this statue had a thirty day limitation. That limitation has been removed. Additionally, there is a requirement in this case that the funds be reasonable traceable. Id at 455 A copy of all pay stubs and a printout from the Municipal or Common Pleas Court should meet this burden of proof The only unresolved issue and problem for the Debtor is that the Debtor spent the 75% exempt portion within the last 90 days and Creditor received the non exempt portion. Is the Debtor double dipping? Ironically, the answer is no. The Debtor is not double dipping. This issue has been raised before in the context of the Ohio personal injury exemption. See In Re Turner 190 BR 836 (1996) in which the Court stated in part at page 840 as follows: Once a debtor's bankruptcy case has been commenced, and the bankruptcy estate created, "a debtor...may remove or acquire property of the estate by claiming exemptions." Bronner v. Gill (In re Bronner), 135 B.R. 645, 647 (9th Cir. BAP 1992). No property may be exempted, however, unless it first falls within the bankruptcy estate. Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 1835, 114 L.Ed.2d 350 (1991). In other words, "a debtor's rights in property claimed as exempt are defined on the date the petition is filed," In re Bronner, supra, 135 B.R. at 647, and "no exempt proceeds exist prior to the commencement of bankruptcy proceedings." In re Rundlett, 153 B.R. 126, 134 (S.DN,Y.1993). In the instant proceeding, then, the funds received from Mr. Clay's insurance company and disposed of prior to the commencement of the debtors' bankruptcy case never became part of the estate's pool of assets from which the debtors are entitled to claim their exemptions. Therefore, the Debtor may claim the wage exemption in the garnish proceeds. However, Debtor should be consisted in their Schedule B only use 75% in funds in the checking account. [This is assuming that there is any money in the checking account] By using the 75%wage exemption ($2,500 x 75% _ $1,850) and the remaining cash on hand and wildcard exemption results in the entire preference being exempted by Debtor!

3 The Income Issue In Chapter 13 All Chapter 13 Trustee's positions onpost-petition funds is that it is income because it is income. What is and is not income in Chapter 13 has not been completely resolved. However, Debtor should be able to argue that the funds recovered were counted as income under the means test. So if those funds were income then, it can not be income now. Conversely, if it is income now, then the funds garnished cannot be income under the means test, therefore Above Medium Income Debtor would be a Below Medium Income Debtor or have a negative DMI. In the Statement of Financial Affairs, Debtor should state that the Debtor claims that any recovered preference will be claimed exempt and is NOT income. I am not suggest that anyone getting a ruling on this issue. Avoid a ruling! When the funds are recovered, Debtor should file a motion to retain again stating that the funds are exempt and not income and then list the various items that the Debtor is going to purchase with these funds.

4 OVERVIEW OF NON CONSUMER DEBTS by Harry B Zornow Whether or not a debt is a "consumer" or "non consumer debt' initially only matters if the Debtor is above the medium income (AMI) and does not want to file a Chapter 13 and pay for 58 to 60 months (all AMI debtors that consult with me want to file Chapter 7) The Relevant Statute 11 USC 101(8) "Consumer Debt" means a debt incurred by an individual primarily for a personal, family or household purpose The Profit Motive Test is NOT the sole criteria for determining non consumer debt "The profit motive analysis~is used, and is clearly appropriate, to determine whether a debt falls outside the category of consumer debt. There is nothing inherent in this test, or direction from the Bankruptcy Code to suggest, that the test defines the only category of non-consumer debt. Therefore, while the profit motive analysis may assist in the determination of which debts are not consumer debt, it does not prohibit other debts from falling outside of the category of consumer debt "In Re Westberry 215 F 3D 589 (6`h Cir 2000) at 593 Taxes [Super Safe] In Re Westberry 215 F 3D 589 (6`h Cir 2000) Tomes are not consumer debt because: 1) taxes are not voluntarily incurred; 2) taxes are incurred for a public purpose; 3) taxes arise from earning of money and consumer debt arises from consumption; & 4) unlike taxes, consumer debt normally involves the extension of credit Id at 591 All tax debts, income taxes, sale taxes, and real estate taxes Automobile Accident Claims [Safe] See In Re Thonta, 401 BR 363 (ED Wis 2009)(Co-Debtor Stay Issue); In P.e Malschelek, 158 BR 704(ND OH 1993); In Re Alverez 57 BR 65 (SD FL 1995) In Re White 49 BR 869 (WDNC 1985) As eloquently stated by the Malschelek Court: Implicit in the Code's definition of consumer debt is the element of volition. That is, the subject indebtedness must necessarily be voluntarily "incurred" by the debtor for the purposes specified

5 in 101(8). In the underlying civil actions, the Debtor was the pally defendant in a negligence action. He, as such, did not voluntarily incur the civil judgments which were adjudicated against him and certainly did not incur the judgment debts "primarily for a personal, family or household purpose". The language of 101(8) is unambiguous. Its literal reading clearly precludes a judgment, as presented herein, from being construed as a "consumer debt". Id at 707 Claims Based On Negligence [Safe) In Re Melcher 322 BR 1 (DC 2005) Claims arising from Statutory Liability [No Case Law] ~ecial Assessment on Real Estate Not Incurred by the Debtor, and for a public purpose, no consumption issue, however there is an extension of credit Civil &Criminal Fines - Not incurred by the Debtor; and for a public purposes, no consumption issue; and no extension of credit Medical Debts Incurred by Spouse ORC provides that a spouse has contingent liability for medical expenses incurred by the other spouse. In this situation, the obligation was not incurred by the Debtor; however there is a consumption issue by the spouse and there is an extension of credit to the spouse Parent Liability for Certain Acts of their Children provides that parents are liable up to $10,000 for willful damage of property or theft by their minor children. Again the Debtor does not voluntarily incur the debt provides that parents are liable up to $10,000 for willful and malicious assaults by their children. Again the Debtor does not voluntarily incur the debt Drivers Reinstatement Fees Not incurred by the Debtor; and for a public purposes, no consumption issue; and no extension of credit

6 Child Support, Alimony and Divorce Decree Obligations [Extremely Unsafe] See In Re Stewart 175 F. 3d. 796(lOt" Cir 1999); In Re Kestell 99 F. 3d 146 (4`h Cir 1996); In Re Hall 258 BR 45 (MD FL 2001); In Re Traub 140 BR 286 (NM 1992); In Re Palmer 117 BR 443 (ND IO 1990) There is a possible argument that child support is not voluntarily incurred because there are statutory guidelines, etc. This argument is may be stronger if the child support is the result of a paternity case in which the support is owed to the State. However, there is NO case that states that child support or alimony are not consumer debts and would be risky to make this argument at this time Student Loans [Emerging View May be Non Consumer Debt] Student loans maybe incurred to increase the earning potential of the Debtor. Therefore the obligation was incurred for profit, and therefore is not consumer debt See In Re Rucker 454 BR 554 (MD GA 2011). This view maybe helpful in a Chapter 7, but maybe harmful in a Chapter 13 in which a parent has co-signer on the student loan. If it is anon-consumer debt, then it is not subject to the co-debtor stay. Conclusion Except for delinquent taxes and student loan debt most AMI Debtors are probably do not owe any other type of non consumer debt. It is more likely than Below Medium Income (BMI) Debtor will have mostly non-consumer debts. Generally, it usually does not matter in a BMI case whether or not a majority of the debt is non-consumer debt. However, if there are possible preferences, particularly to insiders, then it may matter to the Debtor or to the transferee