This question has come up a lot recently during my intakes with clients. Fortunately, the question is totally irrelevant. Bankruptcy does not require you to submit all of the details of your financial life for "approval" or "disapproval" by a bankruptcy judge. Instead, all of the qualifying factors for bankruptcy are already set forth in the statutes and cases that govern bankruptcy law. If you have a good bankruptcy attorney, he or she can tell you before the case is ever filed (or any fees are ever paid) if you meet the qualifications to have your debts discharged in bankruptcy.
By the time your lawyer has reviewed your case and filed your petition in bankruptcy, all of the guesswork should be long gone and there should be no reason you have to wait to find out if your case will "be approved."
Monday, February 28, 2011
Thursday, February 10, 2011
Can a Creditor "Opt Out" of the Bankruptcy?
So many of my clients have been subject to outrageous scare/humiliation tactics by unscrupulous creditors that I could easily write a short novel about it. Nearly all of these tactics are illegal under the Fair Debt Collection Practices Act so the methods must be working pretty well for creditors to keep using them.
Today I had a client tell me that a creditor called her at work and demand payment. We had listed the creditor in the bankruptcy and my client told that to the person on the phone. The creditor said they had "denied" the bankruptcy and were seeking to collect anyway.
WRONG! Creditors do not get to choose whether to "accept" or "deny" a bankruptcy. Unless the creditor is a government agency or a secured creditor (like a home or a car lender, for example), the creditor won't be getting to "deny" a bankruptcy. A bankruptcy filed in the United States Bankruptcy Court applies to all debts and includes all creditors.
Official bankruptcy is different from these so-called "debt settlement" programs you see advertised all over the place. Those non-governmental programs do not require a creditor to participate and all too often some of the creditors in those programs do not participate. Instead, they go after the debtor directly, garnishing her wages and bringing the whole "settlement" program crashing down. Not going to happen in Bankruptcy.
So what happened to my client in the illustration above? As with most bullies, once you stand up to them they leave you alone. I advised my client that the next time the creditor called, my client should tell the creditor that she was keeping a log of all the illegal contacts and that we would be filing a motion in bankruptcy court to get sanctions of $5,000 for every attempt to collect that creditor made. My client told the creditor she hoped the creditor would keep calling so she could get enough to put her kids through college at the creditor's expense!
No more phone calls. :)
Today I had a client tell me that a creditor called her at work and demand payment. We had listed the creditor in the bankruptcy and my client told that to the person on the phone. The creditor said they had "denied" the bankruptcy and were seeking to collect anyway.
WRONG! Creditors do not get to choose whether to "accept" or "deny" a bankruptcy. Unless the creditor is a government agency or a secured creditor (like a home or a car lender, for example), the creditor won't be getting to "deny" a bankruptcy. A bankruptcy filed in the United States Bankruptcy Court applies to all debts and includes all creditors.
Official bankruptcy is different from these so-called "debt settlement" programs you see advertised all over the place. Those non-governmental programs do not require a creditor to participate and all too often some of the creditors in those programs do not participate. Instead, they go after the debtor directly, garnishing her wages and bringing the whole "settlement" program crashing down. Not going to happen in Bankruptcy.
So what happened to my client in the illustration above? As with most bullies, once you stand up to them they leave you alone. I advised my client that the next time the creditor called, my client should tell the creditor that she was keeping a log of all the illegal contacts and that we would be filing a motion in bankruptcy court to get sanctions of $5,000 for every attempt to collect that creditor made. My client told the creditor she hoped the creditor would keep calling so she could get enough to put her kids through college at the creditor's expense!
No more phone calls. :)
Wednesday, February 9, 2011
"But When I Got This Loan I Signed a Promise NOT to File Bankruptcy!"
I hear this sometimes from my clients who have loans with payday lenders or other smaller mom-n-pop type loan shops. When my clients got their loans from these creditors, the clerk had them sign a document that says they promise not to file bankruptcy or include this particular loan in their bankruptcy.
It is NOT enforceable. It's a scare tactic only. Bankruptcy is extremely powerful. It trumps all promises or contracts you may have previously made and gives you a clean break from those debts. Don't let the fact that you might have signed a document like this prevent you from filing bankruptcy.
It is NOT enforceable. It's a scare tactic only. Bankruptcy is extremely powerful. It trumps all promises or contracts you may have previously made and gives you a clean break from those debts. Don't let the fact that you might have signed a document like this prevent you from filing bankruptcy.
Tuesday, February 8, 2011
The Constitutional Right to File Bankruptcy
I get a lot of clients in my office who are relieved to be ridding themselves of a lot of debt, but beset with feelings of failure and the vague sense that filing bankruptcy is somehow "wrong." Frequently a person will say, "I really wish I could pay back these debts. I know I incurred them and I would pay them if I could, but I just can't do it! I feel so horrible about filing bankruptcy."
Stop! If you need to file bankruptcy, you need to file bankruptcy. There is nothing blameworthy about it. I strongly believe that choosing to file bankruptcy is a smart business decision. It has nothing whatever to do with what kind of a person you are. It is simply a frank and honest assessment of your personal financial situation. If you reach the conclusion that you cannot possibly pay off your debts, then you owe it to yourself and society to file bankruptcy. Why? Because if you don't get out from the under those debts they will crush you. You will suffer wage garnishments, leading to possible loss of your home, transportation, and even your job itself. You will never be able to save for retirement or college for the kids. Your ability to purchase goods and services in your surrounding community is vastly diminished or extinguished altogether. Furthermore, the stress of a debt laden life has a huge negative impact on your health and your relationships. In summary, a person or family that is slowly dying from out of control debt must get the fresh start or risk becoming a burden on society at large.
The Founding Fathers foresaw that in a capitalist society like ours, there must be a constitutional right to file bankruptcy. (See for yourself here, fourth line down). Without it, citizens could suffer their whole lives under crushing debt. Exercising your constitutional rights is not amoral or in any way wrong. Do a Google search for "big companies that have filed bankruptcy" and see for yourself that bankruptcy is a business decision embraced by the biggest and most successful companies in the United States. Why should a person feel badly about making the exact same choice?
Stop! If you need to file bankruptcy, you need to file bankruptcy. There is nothing blameworthy about it. I strongly believe that choosing to file bankruptcy is a smart business decision. It has nothing whatever to do with what kind of a person you are. It is simply a frank and honest assessment of your personal financial situation. If you reach the conclusion that you cannot possibly pay off your debts, then you owe it to yourself and society to file bankruptcy. Why? Because if you don't get out from the under those debts they will crush you. You will suffer wage garnishments, leading to possible loss of your home, transportation, and even your job itself. You will never be able to save for retirement or college for the kids. Your ability to purchase goods and services in your surrounding community is vastly diminished or extinguished altogether. Furthermore, the stress of a debt laden life has a huge negative impact on your health and your relationships. In summary, a person or family that is slowly dying from out of control debt must get the fresh start or risk becoming a burden on society at large.
The Founding Fathers foresaw that in a capitalist society like ours, there must be a constitutional right to file bankruptcy. (See for yourself here, fourth line down). Without it, citizens could suffer their whole lives under crushing debt. Exercising your constitutional rights is not amoral or in any way wrong. Do a Google search for "big companies that have filed bankruptcy" and see for yourself that bankruptcy is a business decision embraced by the biggest and most successful companies in the United States. Why should a person feel badly about making the exact same choice?
Monday, February 7, 2011
Interplay Between Median Income and Means Test
If you are on line searching for information about bankrutpcy, you have probably come across information about the "Means Test" and "Median Income." You may be wondering what these are.
In bankrutpcy, you cannot file a chapter 7 unless your combined family income is less than the median income for a family of your size in your state. There are very few exceptions. The median income is determined using IRS figures and it is adjusted a couple times a year. The most recent figures can be found here. (You have to navigate through a couple of links from that page.)
If you are over the median income, then you are looking at a chapter 13. The question arises: "how much do I have to pay back to my creditors in a chapter 13 bankruptcy?" The answer to that question depends in part on how much surplus income you have after running your earnings through the means test. The means test requires you to take the last six months' worth of your income and subtract from it standard deductions formulated by IRS. Some of the deductions you get to take even if you don't actually have such expenses, like recurring monthly medical bills. Other deductions you have to prove, like past due taxes. If you end up with no surplus income after taking all these deduction off your gross earnings, then your monthly chapter 13 payment is going to be a lot lower. Conversely, if the deductions on the means test arent's enough to eliminate all of your income, then the law requires that you pay your creditors more.
The means test is a bear. It is a very complicated government formula that has been the subject of a lot of litigation between bankrupty lawyers, creditors, and the US Trustee's office. A lot of the words that you might think have plain meaning on the means test have been given unusual definitions by the courts.
If you want to take a peek at the bear, you can see the chapter 7 version of the means test here and the chapter 13 version here.
In bankrutpcy, you cannot file a chapter 7 unless your combined family income is less than the median income for a family of your size in your state. There are very few exceptions. The median income is determined using IRS figures and it is adjusted a couple times a year. The most recent figures can be found here. (You have to navigate through a couple of links from that page.)
If you are over the median income, then you are looking at a chapter 13. The question arises: "how much do I have to pay back to my creditors in a chapter 13 bankruptcy?" The answer to that question depends in part on how much surplus income you have after running your earnings through the means test. The means test requires you to take the last six months' worth of your income and subtract from it standard deductions formulated by IRS. Some of the deductions you get to take even if you don't actually have such expenses, like recurring monthly medical bills. Other deductions you have to prove, like past due taxes. If you end up with no surplus income after taking all these deduction off your gross earnings, then your monthly chapter 13 payment is going to be a lot lower. Conversely, if the deductions on the means test arent's enough to eliminate all of your income, then the law requires that you pay your creditors more.
The means test is a bear. It is a very complicated government formula that has been the subject of a lot of litigation between bankrupty lawyers, creditors, and the US Trustee's office. A lot of the words that you might think have plain meaning on the means test have been given unusual definitions by the courts.
If you want to take a peek at the bear, you can see the chapter 7 version of the means test here and the chapter 13 version here.
Friday, February 4, 2011
Utah Bankruptcy Court Website is Useful
The Utah Bankruptcy Court has a website. It is located here.
Unlike a lot of government websites, this one has some pretty useful information. If you click around in there you can find links to the Court's calender for hearings and creditor meetings as well as filing statistics for Utah. There are also all the forms you might need if you are going to try to file bankruptcy by yourself and all of the local rules you have to follow when filing a bankruptcy case. There is also an archive of local bankruptcy court decisions handed down by our three bankruptcy judges in the district of Utah.
OK so maybe most of the stuff on this website isn't interesting unless you are a bankruptcy lawyer.
Unlike a lot of government websites, this one has some pretty useful information. If you click around in there you can find links to the Court's calender for hearings and creditor meetings as well as filing statistics for Utah. There are also all the forms you might need if you are going to try to file bankruptcy by yourself and all of the local rules you have to follow when filing a bankruptcy case. There is also an archive of local bankruptcy court decisions handed down by our three bankruptcy judges in the district of Utah.
OK so maybe most of the stuff on this website isn't interesting unless you are a bankruptcy lawyer.
Thursday, February 3, 2011
Thunderbolts and Lightning at the Confirmation Hearing
Last Monday I was attending a confirmation hearing for one of my chapter 13 clients in the Ogden federal building. The hearings are held in the court room, but the judges who preside over the hearing are actually sitting in their Salt Lake courtrooms and they appear in Ogden via video conference.
For years and years, the video conferencing used by the bankruptcy court has been plagued with problems. Sometimes you can't hear what is being said in Salt Lake or you can't see the video down there. It just never seems to be working perfectly. Last Monday was no exception--there seemed to be some kind of lag in the feed that made it so you could only hear about 4 out of every ten words the judge or the trustee said.
The thing that was new this last time was a picture of a lightning bolt that appeared on the monitor showing Judge Mosier. I am guessing the lightning bolt was supposed to signify some problem with the feed to or from Judge Mosier's camera. It looked like a lightning bolt you would see in a cartoon. It showed up right next to his head and every time it appeared, it gave the impression that he was very angry about what he was hearing. I thought it was really funny and I was glad that it did not appear while I was talking to the judge.
Tuesday, February 1, 2011
Tax Refunds and Bankruptcy
It's tax refund time and a whole lot of my clients are wondering what they should do with their tax refunds. The answer is: it depends.
If you have already filed your chapter 7 case, it's highly likely that your trustee has or will direct you to turn over at least a large portion of your refund. That's his right and your failure to do so will put your case in serious jeopardy.
If you haven't yet filed your case and you are thinking about chapter 7, you should talk to your attorney about the tax refund. Tell your lawyer how much you expect to receive and when you expect to receive it. If you can hold your creditors off for a while longer until you get your refund, it often makes sense to delay filing your bankruptcy until you get your tax refund and spend it down. The bankruptcy trustees don't like it because they want that money, but with a bit of planning this technique is permissible.
There are quite a few things you can usually safely spend your tax refund on: one month's worth of regular utility bills, mortgage, rent or car payment, medicine, medical procedures, home or car improvements (within certain limits), bankruptcy fees and costs, and other outstanding bills less than $600. Make sure you keep your receipts for how you spent it. DO NOT spend the money to pre-pay regular monthly bills. DO NOT use the money to pay back friends or family on loans they might have given you up to this point. As long as you spend the money on permissible expenditures and keep records of your payments, the bankruptcy trustee will probably leave you alone. You should always talk to your lawyer before you spend even one cent of your tax refund just to make sure it's not going to come back and bite you in your subsequent chapter 7 case.
If you are in a chapter 13, you need to ask your attorney how much of your refund you are entitled to keep. In Utah, for cases filed before December 1, 2010, you ordinarily get to keep $1,000 of your state and federal combined refund, and the rest the you must send in with your regular monthly bankruptcy plan payment. For cases filed after November 30, 2010, the bankruptcy trustee is allowing people to keep up to $2,000 of your state and federal combined refund so long as at least $1,000 of that refund is from the earned income or dependent child credit. These are just general guidelines applicable to most chapter 13 cases; check with your lawyer to get the specifics applicable to your case.
If you have already filed your chapter 7 case, it's highly likely that your trustee has or will direct you to turn over at least a large portion of your refund. That's his right and your failure to do so will put your case in serious jeopardy.
If you haven't yet filed your case and you are thinking about chapter 7, you should talk to your attorney about the tax refund. Tell your lawyer how much you expect to receive and when you expect to receive it. If you can hold your creditors off for a while longer until you get your refund, it often makes sense to delay filing your bankruptcy until you get your tax refund and spend it down. The bankruptcy trustees don't like it because they want that money, but with a bit of planning this technique is permissible.
There are quite a few things you can usually safely spend your tax refund on: one month's worth of regular utility bills, mortgage, rent or car payment, medicine, medical procedures, home or car improvements (within certain limits), bankruptcy fees and costs, and other outstanding bills less than $600. Make sure you keep your receipts for how you spent it. DO NOT spend the money to pre-pay regular monthly bills. DO NOT use the money to pay back friends or family on loans they might have given you up to this point. As long as you spend the money on permissible expenditures and keep records of your payments, the bankruptcy trustee will probably leave you alone. You should always talk to your lawyer before you spend even one cent of your tax refund just to make sure it's not going to come back and bite you in your subsequent chapter 7 case.
If you are in a chapter 13, you need to ask your attorney how much of your refund you are entitled to keep. In Utah, for cases filed before December 1, 2010, you ordinarily get to keep $1,000 of your state and federal combined refund, and the rest the you must send in with your regular monthly bankruptcy plan payment. For cases filed after November 30, 2010, the bankruptcy trustee is allowing people to keep up to $2,000 of your state and federal combined refund so long as at least $1,000 of that refund is from the earned income or dependent child credit. These are just general guidelines applicable to most chapter 13 cases; check with your lawyer to get the specifics applicable to your case.
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