Archives for October 2012

Garnishment Money Refunded by Bill Collecting Lawyer after Bankruptcy Filing

I just love when this happens.  I came in to the office this morning, checked the mail box, and here’s letter from one of the big bill collecting law firms.  Often those letters can be some kind of bad news, but today the letter contained a check for over $1000 for one of my clients.  This was a refund of the money that they garnished from my client’s pay check in the 90 days before we filed the bankruptcy.

So you might wonder how this can be.  After all, once a bill collector takes your money isn’t is just gone?  Most of the time it really is just gone, forever.  An exception to the rule, however, can be money that was garnished or seized within 90 days before the filing either of a Chapter 7 or a Chapter 13 bankruptcy.  The window for getting the money back is a pretty small one.  It’s necessary to have all the following before any of the money can come back:

  • It must be a case where the amount seized in the 90 days is over $600.  If it’s over that amount, it counts as what is called a “preference.”  If it’s less than that, it doesn’t count at all.
  • It has to be a bankruptcy case where the debtor is using the federal exemptions.
  • The debtor has to have claimed the preference amount as exempt using the wild card exemption under the federal exemptions.
  • The bankruptcy trustee has to have not objected to the claim of exemption for the preference.  The trustee has 30 days from the date of the meeting of creditors – what I call the hearing – to object to exemptions.  So this means that the 30 day time period has to have expired.
  • You have to actually contact the creditor or the creditor’s lawyer and ask for the money back.  If they won’t give it back, which is often the case, legal action can be taken to get it back.  I tell my clients to not bother with the legal action, however,  because the attorney fees would probably cost more than you would ever get back.

So what I tell my clients when we have this situation is that I will set up the bankruptcy petition so that the money is listed as a preference under assets and them claimed as exempt.  When the 30 day exemption period expires, I will write a letter and demand the money.  Then we wait and see if the money turns up.  It only does in about half or less of the  cases.

Many of the creditors are so nasty that they don’t care if the law requires them to give the money back.  They know that nobody can afford to pursue them  if they don’t.  But I am always joyful to see that check come in the cases where they do.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  Please consult the attorney of your choice concerning the details of your case.  I am a debt relief agency helping people to file for relief under the federal bankruptcy code.

Paying Off Your Chapter 13 Plan Early

Nothing is better than being debt free.

Stick with your Chapter 13 Plan

From time to time I am asked the following question by a potential Chapter 13 client:  If somehow I could come up with the money, could I pay my Chapter 13 plan off early?  If you  have ever seen a Chapter 13 plan, it is easy to understand how this question would arise.  The plan document provides for monthly payments in a certain amount, and then it shows what the total of the payments over the life of the plan will be.  It shows how all the money is  to be applied – so much to unsecured creditors, so much to attorney fees, so much for the trustee’s fees, and certain amounts to taxes or other priority debts.  Usually it will even state in terms of a percentage exactly what fraction of the unsecured debts are being paid.

It seems obvious that once the plan is approved, if the Debtor could come up somehow with the total due under the plan, he or she should be able to  wrap it up early and get their discharge early.

Well, guess what.  That’s not how it works.  Or at least it usually is not how it works.  Simply stated the rule is this:  the only kind of Chapter 13 Plan that can be paid off early is a 100% plan.  Chapter 13 plans fall into two categories:  100% plans and  less than 100% plans.  In a 100% plan, all the unsecured debt is to be paid under the plan.  In a less than 100% plan, only a portion of the unsecured debt is to be paid.  The vast majority of Chapter 13 plans are of the less than 100% variety.

So in most plans, where less than all of the unsecured debt is scheduled to be paid, the trustee will welcome extra payments from folks who have come into extra money that was not expected, such as an inheritance or big bonus at work.  In fact the trustee might REQUIRE that such funds be paid into the plan.  But after that extra payment is made, unless the plan is of the 100% variety,  the regular plan payment is due again the next month – and that continues until the end of the plan or until 100% of the unsecured debts are paid, whichever comes first.

The result of all this is that in most Chapter 13 cases, it is self defeating to take draconian measures for the purpose of raising extra money to pay into the plan.  Unless you can raise enough to pay off 100% of the unsecured creditors who have filed their claims with the bankruptcy court, there’s no reason to make an extra effort.  In fact you might be more or less punished for any such extra efforts.

If you are in Chapter 13 and receive extra money from somewhere, consult your attorney about it right away.  If the  amount is significant enough you probably have an obligation to report it to the bankruptcy trustee.  Sometimes your lawyer can negotiate a deal which allows you to keep some of the funds and pay in only part of it.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  Seek the advice of your own attorney concerning the details of your case.

David Kelly Law Office is a debt relief agency helping people to file for relief under the federal bankruptcy code.

At the Bankruptcy Institute Today and Tomorrow

It’s that time of year again.  Every October the bankruptcy section of the Minnesota State Bar Association puts on a two day continuing legal education program for the bankruptcy attorneys of the state.  Unlike the meetings of the National Association of Consumer Bankruptcy Attorneys, to which I also belong, these sessions include lawyers for the creditors as well as lawyers for the debtors.

There were multiple classees to choose from, and nobody could attend them all without the ability to be in more than one place at the same time.  First I attended a really boring session about amendments to the bankruptcy rules of procedure.  Boring but important.  I hate it but I need to know that stuff.  There was then a sessioabout law office technology, where they had a geek who frankly I had trouble following.  I think his presentation was aimed at law offices larger than what I operate.

The big excitement for the day, however, was the session on lien stripping.  As we filed in and found a place to sit, they were playing an old hit, “The Stripper,” over the sound system.  That lightened things up a bit.  Following the disappointment with the decision in the Fisette case, to which I have devoted an earlier post, the big question is where does lien stripping go from here.  It seems that the rules committee has finished work on a new local rule of procedure which outlines a proposed procedure for doing lien stripping in the District of Minnesota.  The rule has now been presented to the judges for consideration.  As they consider the rule, I expect they will ask for comments.  The new rule seems to assume that lien stripping will be legal in Minnesota, which of course is still undecided – at least not decided permanently and for good.  In my opinion the procedure will eventually become legal and common, but right now I’m still not sure what to make of it.

The proposed lien strip rule will require a motion prior to the confirmation of the Chapter 13 plan asking the court to issue an order establising the value of the home as compared to the amounts owing on  the mortgage liens.  This motion requirement appears to be an invitation to a fight with the lender and the lenders’ lawyers.  I’m not absolutely sure, but the impression I have is that the bankers’ and lenders’ lawyers on the committee outnumber the consumer bankruptcy lawyers on the committee, so that the proposed rule is coming out leaning way in the direction of the bankers.  If this rule is approved, it appears to me that it would make the procedure more risky and more expensive than what most of us were anticipating.

After the lien strip session I attended a session on how to prepare one’s law practice for a disaster, and another sessin about reaffirmation agreements.

So that’s what I learned in school today.

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