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When you hear the term “clawback” in reference to bankruptcy, your mind may go to high-profile cases like the Bernie Madoff Ponzi scheme bankruptcy or similar cases with Lehman Brothers, Bayou Hedge Fund, Nine West, and more. But clawback provisions in the U.S. Bankruptcy Code are tools that can be used in any bankruptcy. A bankruptcy clawback can potentially allow for the recovery of assets transferred out of your ownership in the 90 days before bankruptcy. The purpose of a clawback is to ensure equal and fair treatment of all creditors and to deter bankruptcy filers from engaging in fraudulent activities. If you are being asked to return funds in a clawback situation, it is important that you understand your rights and what kind of legal defenses are available to you. Veitengruber Law can help you assess the claim and determine the best way to protect your assets. What does a clawback action do? In the Bankruptcy Code, the clawback action, also known as an avoidance action, is a policy intended to ensure that all creditors are paid back equally. In all types of bankruptcy proceedings, the legal processes are not adversarial or litigation-based. Bankruptcy is intended to give folks a path towards better financial health—not punish them for financial mistakes. But clawback actions are separate legal proceedings that are referred to as bankruptcy litigation. Sections 547 and 548 of the Bankruptcy Code authorize the trustee or debtor in possession to “claw back” asset transfers made by the debtor prior to bankruptcy. Fraud deterrent: Giving bankruptcy trustees the authority to clawback assets transferred in the 90-days prior to a bankruptcy filing is intended to help deter debtors from fraudulent activity. Some debtors may seek to hide or get rid of assets before filing for bankruptcy to make their case more personally favorable. But this is illegal, and the clawback option allows trustees the ability to recoup these funds. Equity: All creditors are supposed to be treated fairly under the bankruptcy code. The clawback action gives every creditor the opportunity to share in the debtor's assets, rather than favoring one creditor over another. Estate preservation: Clawback provisions allow recovery of assets belonging to the bankruptcy estate, thereby increasing the resources available to satisfy creditor claims. What is the timeframe? The timeframe to reclaim transferred assets depends on the circumstances surrounding the transfers. One kind of transfer is called a preferential transfer. Under section 547 of the Bankruptcy Code, if the debtor is insolvent, any preferential payments made in the 90 days prior to filing for bankruptcy can be clawed back. This 90-day period can be extended to one year if the recipient of the payment or asset transfer is considered an “insider.” An insider would be a relative, close friend, or business partner. This often happens when insolvent individuals choose to repay debt owed to someone they know personally rather than the debt they owe other creditors. Another kind of transfer is fraudulent transfers, covered under section 548 of the Bankruptcy Code. This is any movement of funds or assets out of the debtors possession for “less than reasonable value: while the debtor was insolvent. The lookback period for this is two years under federal law and up to four years under NJ law. So, for example, if you “sell” a vehicle worth $10,000 to a relative for $500 to avoid losing the vehicle through bankruptcy, that is considered fraud. Gifting large sums of money to friends, relatives, and other close associates is also fraud. What is the clawback process like? The bankruptcy trustee can initiate a clawback action by filing a complaint with the bankruptcy court. The complaint seeks court approval to use the clawback provision to retrieve assets transferred in the above-mentioned time frames. The complaint will legally involve the entity or individual who received the assets in the bankruptcy proceedings. From there, the funds will be reabsorbed into the bankruptcy estate, and the court will include these new assets in its equitable distribution to all creditors. What cannot be included in a clawback action? Generally, clawback actions cannot be brought forth to recover regular, timely payments to secured lenders. These payments are considered payments for value received. This would be like your mortgage, car loan, or other secured debt payments. You do not have to stop making regular payments on your debt out of fear that the payments will lead to clawback claims in bankruptcy. However, if the payments were abnormally large, above your normal monthly payment amounts, or non-routine, there could be a case for your trustee to attempt to claw back those funds. Can I legally defend myself from clawback claims? If you are facing a clawback claim, it is critical to understand your rights and any potential defenses you can use in court. Common clawback legal defences include: 1. Ordinary Course of Business The debtor must prove that the payment was made for a debt incurred in the ordinary course of business. This is typically proved by showing historical patterns. This defense is typically used in Chapter 11 bankruptcy to show that debt incurred by a business or entity was legitimate for the business's operations. 2. Good Faith Good-faith arguments are made to show that a debtor acted honestly and transparently, and made a sincere attempt to reorganize or repay debts. Many folks who find themselves dealing with clawback claims did not intentionally set out to commit fraud. When reviewing a good-faith argument, the court will look at the “totality of the circumstances” to make a decision about the intention behind large sum payments in the time before a bankruptcy filing. 3. Statute of Limitations If your assets were transferred outside of the federal or state statute of limitations, they are not eligible for a clawback claim. So, if you sold a property below value to your child ten years ago, this transfer cannot be considered for a clawback claim. Attempts to include these assets through clawback actions can be dismissed in court. How can I prevent bankruptcy clawback actions? Transfers of assets in the months and years before a bankruptcy filing are often made in complete innocence. Not every debtor who finds themselves dealing with a clawback action did anything attempting to defraud the court or their creditors. But unintentional violations of the Bankruptcy Code can still result in clawback actions. The best way to prevent clawback actions is to work with an experienced bankruptcy attorney. You need to be fully transparent with your lawyer and disclose all recent transfers of money or assets. They can help you determine if any actions could be considered fraudulent and how to deal with those issues before you open a bankruptcy case. Veitengruber Law is well-versed in New Jersey bankruptcy law. We understand the intricate complexities of bankruptcy proceedings. In adversary proceedings, clawback actions require different legal skills than in a typical bankruptcy case. Veitengruber Law has experience with bankruptcy litigation. Let us help you protect your assets .

One of the defining differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy is that under Chapter 13, you can keep all of your property. While bankruptcy allows exemptions for specific property based on state or federal guidelines, in Chapter 7 bankruptcy, the trustee will liquidate any non-exempt property to raise funds to pay your creditors. In Chapter 13 bankruptcy, liquidation of assets does not typically occur. Instead, you enter into a repayment plan based on your income and the debt owed. Home equity can be helpful in Chapter 13 bankruptcy—but it can also complicate things. The specific ways your home’s equity can impact your Chapter 13 filing will depend on how much equity you have, how much debt you have, and your income. Veitengruber Law has nearly two decades of experience representing NJ homeowners in bankruptcy cases. We understand how to make your equity work in your favor during bankruptcy. Here is everything you need to know about your home’s equity during a Chapter 13 bankruptcy. Exemptions in Chapter 13 Bankruptcy In Chapter 13 bankruptcy, exemptions are used to calculate the minimum amount the filer is expected to repay to unsecured creditors. Because you keep all your property under Chapter 13, these exemptions are not used to protect assets from liquidation. Instead, they help the courts determine how much of your debts you should be expected to repay. Typically, you will need to repay at least as much as your creditors would get if your assets were to be liquidated. This amount does not include assets protected by exemptions, such as the homestead and wildcard exemptions. The value of any non-exempt property will be used to determine how much you will repay creditors in your 3-5 year repayment plan. This process is known as the “Best Interest of Creditors” test. The federal homestead exemption protects equity in your primary residence up to $31,575. This amount is protected and cannot be used in the calculation of what you owe your creditors. So, if you have $50,000 in equity in your primary residence, the value of $31,575 is protected. This leaves $18,425 in excess of the exemption limit. This means you will have to pay at least $18,425 in unsecured debt back to your creditors. This does not include other non-exempt assets that also have equity, like cars, boats, real estate, and other secured property. So, if you have a lot of credit in your property, or at least credit that exceeds your exemptions, you may end up having to pay back more to your creditors. Exempting the highest amount of equity that you possibly can is the best way to lower your monthly payments. In NJ, you will have the option to choose between using state or federal bankruptcy exemptions. Working with an experienced bankruptcy attorney can help you determine which set of exemptions is better for your specific situation. Funding Your Repayment Plan with Equity After you go through the bankruptcy process and the court determines your repayment plan, you can use your home equity in creative ways to pay off the total amount you owe. Refinancing your home or taking out a home equity loan/line of credit can be options. It is possible to use your home’s equity to pay off your Chapter 13 repayment plan in full, but there are quite a few hoops to jump through. First, because you are under court supervision throughout the entirety of your Chapter 13 repayment plan, you need to receive approval from the court, the bankruptcy trustee, and your lenders to obtain new debt against your home. All parties need to agree that it is in the best interest of all involved to use your home’s equity in this way. Next, you will need to work with your lender to determine your eligibility for refinancing OR a home equity loan/line of credit. Your lender may be wary of approving you for new credit since you are in bankruptcy. You will likely need to work carefully with a bankruptcy attorney to negotiate approval with your lender. If you are able to get approved, you can use the funds to pay off your Chapter 13 plan. Of course, there are risks involved in this plan. Under a Chapter 13 repayment plan, your home is protected from foreclosure and cannot be liquidated to raise funds to repay your creditors. Once you borrow against your home and your equity, however, it is possible to lose your home. Your property will be at risk if you are unable to afford the new loan payments. Alternative Ways to Use Equity If you have significant equity in your home, you may be able to sell your home to raise the funds needed to pay off the bankruptcy plan. Selling your home would also require approval from the bankruptcy trustee. If you are able to get approval and sell your home for more than you owe on your plan, you can pay it off outright and be totally free of your debts. However, you would need to find a new place to live, which can be difficult in the aftermath of bankruptcy. Your credit will be negatively affected, and the bankruptcy will remain on your credit report for 7 years after you file. It may be challenging to get approved for a loan to purchase a new home, or even to rent. Selling your home to get out of debt without a plan for where you will live afterwards can put you in an even more precarious situation. You should take these factors into consideration before trying to use your home to pay off your bankruptcy plan. You should compare the monthly costs for any new loan versus the monthly cost of your bankruptcy plan payments and determine which is more affordable for you. Working with a Bankruptcy Attorney It is always crucial to work with a bankruptcy attorney. Bankruptcy law is complex. With your financial well-being on the line, it is important to explore every available option. A bankruptcy attorney will be able to help you sit down and come up with the best plan to move forward on a better financial footing. Having assets, like equity, should never be considered a negative. Finding ways to make those assets work in your favor can make a huge difference in the outcome of your Chapter 13 bankruptcy. An attorney can also help you protect your assets. Veitengruber Law has experience helping NJ homeowners protect their assets during bankruptcy. In addition to our bankruptcy knowledge, we have experience in debt management, credit repair, and real estate law. We offer holistic solutions to financial challenges that help our clients plan for a brighter future. Call us today for a consultation .

There are many reasons to sell a home. Moving for a new job opportunity, upsizing, downsizing, financial changes, and other major life events can trigger a home sale. The process of selling a home can be expensive, time-consuming, and stressful. From repairs and renovations to staging and home viewings for potential buyers, sellers go through a lot to finally secure a deal and get their home under contract. Most sellers celebrate a successful sale. But what happens when a seller changes their mind after a contract has been signed? Real estate contracts are legally binding agreements. There can be huge legal and financial consequences for backing out of any contract. Sellers could have to pay fines and damages, and even be forced to sell their home anyway. Still, while a seller shouldn’t view backing out of their contract lightly, it is possible. Here, we will look at why—and how—some sellers are able to back out of a contract. When can a seller back out of a contract? There may be many reasons a seller wants to back out of a contract. It can be difficult to leave a place you call home. Some sellers find the emotional distress of leaving a beloved property more real after a contract has been signed. Sellers can also run into logistical issues when selling, such as not being able to find or afford a new residence. In more practical terms, a seller could get a better offer on the property. In terms of protecting yourself, the “why” of backing out of your contract does not matter as much as how you do it. Whether a seller can legally back out of a contract depends a lot on the clauses in the sale contract. These clauses, called contingencies, allow a buyer or seller to exit a purchase agreement under specific conditions. Some common contingencies include: The seller receives a higher offer from another buyer The seller has not secured a replacement home The seller experiences unexpected financial losses The property appraises for more than the buyer has offered The buyer fails to secure funding to purchase the home Contingencies can allow a seller to build an escape plan into the contract from the beginning. However, sellers should be wary and realistic about the contingencies they include. Buyers and their attorneys may be turned off by too many contingencies that favor the sellers interest over those of the buyer. There are other reasons, beyond contract contingencies, that a seller may be able to legally back out of a contract. Those include: Issues With Attorney Review In New Jersey, there is an automatic three-day attorney review period. This phase happens after both parties have signed the contract and lasts three days. During this time, buyers and sellers should have the contract reviewed by a real estate attorney. An attorney will go through the document and note areas of concern or where the contract is in need of revision. They may suggest adding contingencies to protect you in case you need to get out of the contract. You Reach a Mutual Agreement It is very possible that after you explain why you need to back out of the deal, the buyer will understand and agree to let the contract end. While the buyer is not obligated to agree to end the contract, it does not hurt to ask. It is very possible that the buyer, while being disappointed, would understand, depending on the circumstances. Fraud is Discovered If you can prove that the buyer made a fraudulent statement or that you are the victim of a scam, you can cancel the sale and end the contract. For example, a buyer is taking advantage of an elderly seller by offering a low price. In this case, the contract could be canceled for cause. What are the consequences of backing out? Sellers who attempt to back out of a real estate contract without cause can face costly consequences. Typically, real estate contracts are written with language geared towards protecting buyers more than sellers. A seller who goes back on the agreement could end up being sued for breach of contract. After this, the buyer could choose to sue for damages or even sue for ownership of the property. If this issue ends up in court, a judge could order the seller to sign the deed over to the buyer and complete the sale. Judges may also stack on other penalties, like: Returning the buyer’s earnest money deposit, plus interest Reimbursing fees paid by the buyer for inspections and appraisals Paying the listing agent the cost of the lost commission Breach of contract is a civil matter, not a criminal one. So while a seller may have their day in court, they typically do not need to worry about jail time. However, this should not diminish the stark financial consequences of breaching a contract. What are the buyer’s options? If a seller backs out of a contract without cause, buyers have a lot of protections. An experienced real estate attorney will be able to review the contract to determine exactly how it was violated. If the buyer decides to take the issue to court, they can sue the seller for breach of contract. Buyers should note, however, that regardless of the results of the court case, legal action can be expensive and time-consuming. Buyers are well protected, but they are also not guaranteed a satisfying result in legal action. How can a real estate attorney help a seller? The best way to protect yourself as a seller is to work with a real estate attorney from the very beginning. A real estate attorney can work with you to protect your assets and your interests while ensuring you are following the law. Real estate attorneys are experienced contract negotiators. They can recommend clauses, terms, and contingencies in the contract that can protect sellers from becoming in breach of contract. If a seller does want to exit a contract, working with a real estate attorney can help them find the legal path forward. Attorneys are expert negotiators who can work with the buyer to find a mutually agreeable resolution to end the contract. Ultimately, the onus is on the buyer to hold the seller responsible. Many folks are not going to want to worry about a legal battle and will cut their losses and resume the search for a new property. But if a buyer is insistent on a deal, there is not much a seller can legally do to get out of it. Veitengruber Law is an experienced real estate attorney in New Jersey. We help NJ homeowners protect their assets throughout every real estate transaction. Whether you are buying or selling, we offer knowledgeable legal advice for a smooth transaction. We offer contract writing and review, negotiation, title research, closing services, and more. Buying or selling property can be intimidating, but it does not have to be. Veitengruber Law is ready to help you achieve your real estate goals.

Your home is likely your largest asset. As such, being a homeowner plays a significant role in your overall financial health and future financial goals. Homeowners can use their home as collateral to access different financing opportunities, such as taking out a second mortgage on their home. A second mortgage is an additional loan taken against a property that already has an existing primary mortgage. The second mortgage uses the equity in the home as collateral. The equity in a home is the difference between its value and the amount still owed on the property. Many homeowners use the equity in their homes to address financial issues or achieve goals they otherwise would not have the funding for, such as home expansion or remodeling. The decision to tap into your home’s equity is a big one. You need to have a thorough understanding of how second mortgages work and determine if it is truly the better choice over other financing options. How does a second mortgage work? A second mortgage gives you the ability to borrow against the equity you have built up in paying your regular primary mortgage payments every month. As you’ve owned your home, the value of your property has likely increased as well. As your home’s value increases and your debt on the property decreases, you build equity, a powerful asset that can be used for financing opportunities. A second mortgage, otherwise known as a junior lien, is secondary to your primary mortgage. This means if the home were to be foreclosed on, the primary mortgage holder would receive funds to satisfy the debt before the second mortgage lender. Payments for your second mortgage would be made separately from your primary mortgage and would carry their own interest rate and terms. What kinds of second mortgages are there? There are two kinds of second mortgages. Which one you qualify for depends on how much equity you have and your overall financial standing. 1. Home Equity Loan A home equity loan is a fixed-rate loan for a specific amount, paid out in a lump sum and then repaid over a set term. You would calculate how much you can take out as a loan by subtracting your mortgage balance from your home's market value. Most lenders will approve homeowners to borrow up to 80-85% of their home’s equity. They will also consider factors such as your income and credit report to determine how much they are willing to lend. This type of loan is ideal for big, one-time expenses such as debt consolidation, education, or home renovations. 2. Home Equity Line of Credit (HELOC)  A HELOC loan is a revolving loan, like a credit card, except your home’s equity is used as collateral for the loan. This allows you to borrow funds up to a set limit for expenses as needed. HELOC loans typically have variable interest rates. With a HELOC, there is a draw period and a repayment period. During the draw period (typically around 10 years), you can borrow, repay, and borrow again indefinitely as long as you stay below your limit. During this time, you only pay interest on what you’ve drawn. Once the draw period is over, you enter the repayment period. During this time, you cannot borrow more, and you begin paying back the principal and interest over a predetermined term (10-20 years). The variable rate can change your monthly payment significantly over the life of the HELOC. What are the benefits and drawbacks of taking out a second mortgage? Rates for a second mortgage are typically lower, and terms are more favorable than those of credit cards or personal loans. Because a second mortgage uses your home as collateral, lenders are more flexible on other terms of the loan. You can save a lot of money on interest by opting for a second mortgage instead of taking out a personal loan or maxing out a credit card. There are also potential tax benefits to taking out a second mortgage instead of an unsecured loan. In some cases, home equity or HELOC loans are tax-deductible if the money is used to improve, renovate, or purchase a home. This can also help offset the loan's costs. On the other hand, if you fail to make the payments for your second mortgage, you could end up losing your home. Defaulting on your second mortgage can lead to foreclosure and the loss of your home. Also, when you use your equity as collateral, you could end up with less equity if property values drop. You may also face qualification hurdles to get approved for a second mortgage if you do not have a strong financial profile and substantial home equity. The decision to take out a second mortgage is personal. Whether a second mortgage is a good idea for you depends on your specific situation. If you are considering a second mortgage or are having trouble making payments on one, Veitengruber Law can help.

It is common for parents to leave their home to their children in their estate plan. A home is likely to be the largest asset a person has at the end of their life, and it makes sense that parents want to share this asset with their children. Where things get complicated, however, is when a parent leaves property in equal parts to multiple siblings without specifying how it should be divided. This can frequently lead to disagreements. Some siblings may view the property more sentimentally, wishing to live in the home themselves or keep it in the family. Other siblings may view the property as a means of generating income, either by selling the home or setting it up as a rental. Disagreements can arise among siblings dealing with different life circumstances, financial needs, and aspirations. When these disagreements cannot be resolved with compromise, a legal solution may be required to allow all parties to move forward. This is called a partition action. What is a partition action? A partition action is a legal process through which co-owners of a property can divide and distribute the property. This legal recourse is normally taken when co-owners cannot agree on how to manage or utilize the property. A third party, such as a judge, will review the case details and determine how the property should be divided in accordance with legal precedent. The goal is to find a solution that is fair, equitable, and in the best interest of all parties involved. Types of Partition Actions 1. Partition By Sale In this partition, the co-owned property is sold, and the profits are divided among the co-owners. Everyone will receive an equitable share of the proceeds and can use their portion as they wish. There will be no more co-owned property, so the disagreement is resolved as well. The partition by sale can be an issue for siblings who have an emotional attachment to the property, intend to live in it, or are financially dependent on it as a source of income. 2. Partition In Kind This kind of partition physically divides the property among the co-owners. This is more likely to be an option for larger plots of land. Each co-owner receives an equitable share of the property and can use their portion however they want. However, physically dividing the property can decrease its value. It can also make it harder to find buyers if one owner is looking to sell the property. 3. Partition By Appraisal Partition by appraisal involves an appraiser determining the property's value so that one party can pay the other the amount they would receive if the property were sold. This way, one sibling can keep the property and own it outright, while the other sibling (or siblings) receive their fair share now. This can be a great option if the person who wants to keep the property has the means to buy out the other co-owners. Also, depending on the market and how the property is appraised, the sibling keeping the property may have to pay out far more than they want or can afford. On the flip side, if the property is appraised for less, the siblings getting bought out may feel they are getting the short end of the stick. Final Thoughts Taking a family member to court can be a life-altering event. Your relationship may never be the same again. Before you initiate a partition action, consider whether there are any other options to resolve your conflict without taking legal action. Consider if the outcome—even if it is the outcome you desire—is really worth it. Negotiation, mediation, and compromise are typically the best path forward for all. For parents planning to leave property to multiple children, having conversations with your children about your expectations for dividing property can help alleviate any conflicts when you are gone. Veitengruber Law is an experienced estate planning attorney. We work with folks in NJ to ensure their assets are protected during their lifetime and after. We can help you establish an estate plan that minimizes the risk of conflict among your heirs.