Month: November 2017

Under Connecticut law, there is “[t]he equitable right to cancel or offset mutual debts or cross demands, commonly used by a bank in reducing a customer’s checking or other deposit account in satisfaction of a debt the customer owes the bank.”  (Emphasis added.)   Black’s Law Dictionary (6th Ed.1990) p. 1372;  see Normand Josef Enterprises, Inc. v. Connecticut National Bank, 230 Conn. 486, 494, 646 A.2d 1289 (1994).

The most common situation is where a customer owes money on a credit card and the customer also has a checking account.  The bank can offset the funds in the checking account against the credit card balance.

 

Bankruptcy Code Section 553

(a)Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—
(1)the claim of such creditor against the debtor is disallowed;
(2)such claim was transferred, by an entity other than the debtor, to such creditor—
(A)after the commencement of the case; or
(B)
(i)after 90 days before the date of the filing of the petition; and
(ii)while the debtor was insolvent (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561); or
(3)the debt owed to the debtor by such creditor was incurred by such creditor—
(A)after 90 days before the date of the filing of the petition;
(B)while the debtor was insolvent; and
(C)for the purpose of obtaining a right of setoff against the debtor (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561).
(b)
(1)Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of—
(A)90 days before the date of the filing of the petition; and
(B)the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency.
(2)In this subsection, “insufficiency” means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim.
(c)For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.

 

In the first instance, a bankruptcy court will look to state law to determine if a Bank can offset a debt of a customer against another account of the customer in the same bank.

However, Regulation Z limits the right of a bank to offset accounts, on consumer credit card payments.

 

12 C.F.R. 226.12

(d)Offsets by card issuer prohibited.
(1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder’s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.
(2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.
(3) This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder’s credit card debt from a deposit account held with the card issuer (subject to the limitations in § 226.13(d)(1)(related to billing errors)

Paragraph 3 provides for automatic withdrawals, not setoffs, if authorized in writing

For property taxes, a city or town has 15 years from the date a bill is due, to collect on a property tax bill.

The law can be found at Connecticut General Statutes 12-164 reproduced below

(a) No payment of taxes shall be enforced by any collector or other proper officer against any person, persons or corporation against which they are respectively levied except within fifteen years after the due date of the tax. The provisions of this section shall be retroactive. The fifteen-year limitation shall not apply to improvement liens except those which have been released of record prior to July 18, 1945. Collectors shall compute interest on improvement liens for a period of not more than fifteen years, and at a rate, after July 18, 1945, and retroactively, not exceeding twelve per cent per annum, any provision of any special act to the contrary notwithstanding. The term “improvement lien” as used herein includes municipal liens for repairs and services.

 

Unfortunately,  on occasion,  a tax bill is assessed on October 1, and sent out for July 1 of the following year.   When the tax bill is sent out, the taxpayer has moved without leaving a forwarding address.   I have seen situations where a municipality contacts a taxpayer for a bill which is over 10 years old, but still due and owing.

What is particularly difficult about these situations is that there is an interest rate of 18%, per year, on unpaid property taxes.  In addition, most of these bills relate to property taxes on motor vehicles which a taxpayer no longer owns.

If you have any questions, please feel free to contact

Attorney Robert M. Singer

2572 Whitney Avenue

Hamden, Connecticut 06518

203-248-8278

rsingerct@yahoo.com

 

 

“Liquidated damages” is an amount of money agreed upon by both parties to a contract that one will pay to the other upon breaching (breaking or backing out of) the contract.

The amount is “liquidated” because it is a fixed amount, which is determined at the time that the contract is formed.

 

Connecticut General Statutes 42-150u – Enforceability of liquidated damages provision in consumer contracts

(a) No provision in a written contract for the purchase or lease of goods or services primarily for personal, family or household purposes that provides for the payment of liquidated damages in the event of a breach of the contract shall be enforceable unless (1) the contract contains a statement in boldface type at least twelve points in size immediately following such liquidated damages provision stating “I ACKNOWLEDGE THAT THIS CONTRACT CONTAINS A LIQUIDATED DAMAGES PROVISION”, and (2) the person against whom such provision is to be enforced signs such person’s name or writes such person’s initials next to such statement. Nothing in this section shall validate a clause that is a penalty clause or is otherwise invalid under the law of this state.

 

Several items to note

The contract must be in writing

The contract but be for “personal, family or household purposes.”  This is a consumer contract.

The contract must have in boldface, at least twelve point in size, the appropriate provision.    The statute provides language which needs to be followed to have the liquidated damage provision enforceable

The party who breaches the contract must sign or initial next to the provision.

 

A party who breeches a contract can always argue that the liquidated damage provision is a penalty which should not be enforced.  Typically, this occurs when the damage clause provides for a damage amount which is clearly far in excess of any damages which may occur from the breech.

PA 16-97 provided below limits a creditor’s right to collect against an LLC member, by way of a “charging order.” The law is effective July 1, 2017. The statute is codified at Connecticut General Statutes 34-259b.

Charging Order (a) On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. Subject to subsection (e) of this section, a charging order constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor. To the extent that the transferable interest of the judgment debtor is so charged, the judgment creditor has only the right to receive any distribution or distributions to which the judgment debtor would otherwise have been entitled in respect of such transferable interest.
(b) To the extent necessary to effectuate the collection of distributions pursuant to a charging order in effect under subsection (a) of this section, the court may: (1) Appoint a receiver of the distributions subject to the charging order, with the power to make all inquiries the judgment debtor might have made; and (2) make all other orders necessary to give effect to the charging order.
(c) The member or transferee whose transferable interest is subject to a charging order under subsection (a) of this section may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the court that issued the charging order.
(d) A limited liability company or one or more members whose transferable interests are not subject to the charging order may pay to the judgment creditor the full amount due under the judgment and thereby succeed to the rights of the judgment creditor, including the charging order.
(e) The entry of a charging order is the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment creditor, satisfy the judgment from the judgment debtor’s transferable interest. With respect to the judgment debtor’s transferable interest, attachment, garnishment, foreclosure or other legal or equitable remedies are not available to the judgment creditor, whether the limited liability company has one member or more than one member.
(f) Sections 1 to 102, inclusive, of this act do not deprive any member or transferee of the benefit of any exemption laws applicable to the transferable interest of the member or transferee.

Most new businesses are incorporated as L.L.C.s. Therefore, assuming there is a judgment against an L.L.C. member, the membership interest cannot be sold to satisfy an outstanding judgment. The “exclusive remedy” is a charging order.

The statute applies to a debt of a member individually, not to a debt of the LLC as a separate legal entity.

The charging order rules apply even if there is a single member LLC.

Assuming the LLC fails to pay over any distributions, a creditor can ask for a further order of the court. This may take the form of a receiver, or a “Turnover Order.” Creditors need to be allowed to examine an officer, and records, of the LLC, to ensure proper compliance with a charging order.

With the changes in Connecticut law, business owners will have further motivation to establish an LLC as an asset protection tool.

If you have any questions, please feel free to contact Attorney Robert Singer

2572 Whitney Avenue

Hamden, Connecticut, 06518

203-248-8278

rsingerct@yahoo.com