Bankruptcy Archives - Page 2 of 2 - Better Call Dave

August 2, 2014August 2, 2014

Using the Federal Wild Card Bankruptcy Exemption in Minnesota

In either a Chapter 7 or Chapter 13 bankruptcy in Minnesota, once it’s established that you qualify to use the federal exemptions, the most important exemption of all is probably the one they call the “wild card” exemption. It is also sometimes called the “catch all,” and is provided for in 11 USC 522 (d)(5). You might hear me call it “the d 5.” Here’s a video I posted recently on the subject.

Yes, sorry the lighting and sound are terrible on this video, but I’ve leaving it up because the content is valuable.

The exemption has a minimum of $1,225 and a maximum of $12,725. Most of my clients qualify for the maximum. It’s called the wild card or catch all because it can be applied to any asset. Unlike all other exemptions, the asset does not have to fit into a particular category before it an be exempted under the wild card. The best thing about it probably is that it can be used in combination with another exemption.

For example, say you have a car that has equity of $4,675. It has a KBB private party value of $9,675, but there’s a car loan with a balance of $5,000. First I would claim the federal automobile exemption which is $3,675. Then I would apply $1,000 of the wild card to take up the slack. Now the car is 100% exempt. My client gets to keep the car. The trustee can’t have it. And my client still has $11,725 of wild card to apply to other assets.

In a joint filing by a married couple, each party has their own wild card exemption of up to $12,725. If all the assets were joint, that would have the effect of doubling the wild card for them. However, I’ve never seen a couple yet that owed everything jointly. Most couples have a hodgepodge of assets – some his, some hers and and some theirs. This would be worse yet if Minnesota were a community property state, but we’re not. I often find that I have to take out a pad of paper and make columns listing his wild card items and her wild card items separately, so I can make sure that neither column exceeds the $12,725. It’s quite unusual to see a situation where those limits are exceeded, but I have seen it happen. Using a note pad is a pretty low tech way to figure it out, but my soft ware doesn’t do that job for me.

Getting the exemptions right is quite tricky. Be sure you have a lawyer who knows what he or she is doing, and don’t even think of trying to do the case yourself. Failure to properly exempt assets is one of the most common mistakes made by people who try to represent themselves in the bankruptcy court.

This is for general information only, is not legal advice, and does not create an attorney-client relationship. I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

August 31, 2012August 28, 2012

How Is My Credit Affected By Bankruptcy?

Credit rating is very important in our society. It determines how much money you can borrow to buy a car, a home or how much you can charge on credit cards. A strong credit rating gets you the best credit with the lowest interest rates because creditors see you as a good risk. Many people avoid filing bankruptcy because they fear the effects it will have on their credit rating.

Kelly Law Office does not do credit repair work. From our perspective, those who claim to be able to repair credit appear to be making very questionable claims. In the course of doing bankruptcy work, however, we get a lot of feedback from clients as to how the bankruptcy has affected their credit and their lives in general. The overwhelming majority of the feedback is positive.

Just how a bankruptcy will impact your credit rating if you file a Chapter 7 bankruptcy or a Chapter 13 debt reorganization plan depends primarily on what your credit rating looks like when you make the filing. If your credit is very good, a bankruptcy of any kind will have a serious negative impact on your credit rating. As a practical matter you will not have credit for several years. What we hear is that the credit bureaus keep the bankruptcy filing on the credit report for ten years. However, usually after three or four years, based on what we have been hearing from our clients, credit will start to improve. Typically in any given year, Dave Kelly will regularly get phone calls from clients who filed three or four years earlier asking for copies of documents from their bankruptcy files. Why are they asking for the info? Because they want to use it as part of a credit application. They have a banker or a lender who is about to give them a car loan or extend some other sort of credit. Caution is recommended once credit is available again. We would rather not see folks again for another bankruptcy years later.

If, however, your financial difficulties have been mounting for some time and your credit rating is already significantly damaged or will be in the near future, filing for bankruptcy might be the best move you can make. It may, in fact, help you improve your credit.

Once you have completed the bankruptcy process, you are essentially debt free. While you have a bad credit score, you now have the ability to repay any new creditors. This makes you a better risk than when you were carrying all the debt. You may be penalized for bankruptcy and poor credit with higher interest rates but it is an opportunity to start rebuilding your credit. Under Chapter 7 protection, you can only file once every eight years. This gives you plenty of time to rebuild your credit once you are debt free.

If it has been less than eight years since you filed a Chapter 7 bankruptcy, you can still file a Chapter 13 bankruptcy, providing you are meeting the pre-established percentages for the debt you must repay. There are time limits on getting at a discharge under Chapter 13 as well, but usually by the time the payment plan is completed in the Chapter 13, the time limit would have expired and the debtor would be eligible for the discharge.

August 1, 2012

Recent Purchases Before Filing for Bankruptcy

When filing for a Chapter 7 bankruptcy, many debtors are concerned about the status of large or luxury purchases they may have made in the weeks or months before filing.

These purchases may have been for expensive jewelry, cars, boats, or other items. Whether these items can be retained by the debtor after filing for bankruptcy depends on the nature of the item and how and when it was purchased.

Credit Card Purchases

The trustee in a Chapter 7 bankruptcy will look to any major purchases you made in the past 90 days or even beyond in some cases. Also, a creditor may challenge your use of their credit card if it can show that your actions indicated an intent to not repay them.

For example, if you bought a $2,500 bicycle on your MasterCard three months ago and made no payments before filing, the creditor is very likely to file an objection to the discharge of that particular debt. You will be accused of intending to run the debt through bankruptcy at the time it was incurred. “Fraud” is the term the bankruptcy code uses to describe this behavior. The creditor’s objection will be likely to prevail.

For some large items bought on a particular credit card, you may have unwittingly signed a purchase money security agreement. In this situation, the creditor could claim title to the item and demand you either return it, pay the current market value of it, or make monthly payments.

Reaffirmation and Redemption

For other expensive purchases made with cash, you may or may not be able to retain the item. Your assets and debts make up your estate. According to law, you have certain assets that are exempt from seizure by the trustee and assets that are nonexempt. Your exempt property is usually protected only up to a certain amount. For example, most states allow a limited homestead exemption regarding your equity. You can also exempt one automobile valued up to a certain amount.

Automobiles and boats

If you just purchased an expensive car for cash, it is unlikely you can keep the vehicle since its market value will likely exceed the exempt amount. Under the Minnesota exemptions, you can claim one car of a value up to $4,600; or if you choose to use the federal exemptions, which are also available in Minnesota, you can claim up to $3,450.00 of equity in a vehicle as exempt. So with the exemption being lower, why would you choose the federal exemptions? Because the federal exemptions also include a wild card exemption which you can use for anything up to $11,975. Excess equity in a car, or anything else that doesn’t fit in one of the specific categories, can be claimed as exempt under the wild card. If you have assets that you are unable to exempt, however, you can expect the trustee to seize them unless you have the ability to buy the assets back from the trustee.

If you have a loan on the car, some of the lenders will require that you reaffirm the debt with a reaffirmation agreement as a condition of allowing you to keep the vehicle. Most of the lenders, however, will let you just keep making the payments without a reaffirmation – a procedure called retain and pay. A reaffirmation agreement is a contract which reinstates the loan as if the bankruptcy never happened. Such agreements are to be avoided if at all possible. Since 2j005 the bankruptcy code has not included retain and pay as one of the options, but most lenders will do it anyway. Another option, one which is still in the bankruptcy code, is redemption. Redemption means paying in one lump sum – the full value of the vehicle or other security. There are a few lenders out there who will finance redemptions, at a very high interest rate, but in general this is rare.

There are no specific exemptions for boats. If the boat is a very modest one, you might be able to exempt it with the wild card. Unless you can use the wild card, the trustee will likely sell any boat, and that money will go to the trustee and the creditors. The best thing to do with a boat is usually to sell it before filing the bankruptcy – for fair market value of course. You can use the proceeds to hire your lawyer.

Jewelry

Most states have a jewelry exemption. Under Minnesota statutes the only jewelry exemption is for wedding rings – up to $2,817.50. The federal exemptions exempt $1,450 of any kind of jewelry. Your attorney will ask to determine the liquidation value of the jewelry, or how much you could get if you sold it. A formal appraisal may be needed. In some cases, the liquidation value is considerably less than what you paid for it and it may fit within an exemption.

If you bought the jewelry on credit and the creditor has a perfected security interest in the item, it could demand you return it or continue making payments. Taking legal action against you and then selling the item is generally an expensive process. In many cases, the creditor may agree to work out a payment arrangement or you could pay the redemption value in one lump sum. Typically a payment plan would be written up as a reaffirmation agreement.

Reaffirmation agreements have to be filed with the court prior to the date of discharge for them to be legally enforceable. This means the window during which they can be done is quite narrow.

If you have non-exempt jewelry, as with any asset that is non exempt, you can negotiate with the trustee to buy back the jewelry, if no security interest exists on it, once you determine its resale value.

In any of these scenarios, it is best to consult with a bankruptcy attorney before you file for Chapter 7 protection and to see if a Chapter 13 is more applicable or some other financial option is available. The bankruptcy code is a mine field of “gotchas,” and it’s not a place you want to go without a lawyer.

The author of this article resides in Minnesota, and the references to exemption laws are intended only to apply to Minnesota residents. The exemption scenario is different in every state; and if you are not from Minnesota, it could be very different in the state where you live.

This article is intended for general information purposes only and it not intended to be legal advice

July 2, 2012July 2, 2012

Can Bankruptcy Stop Foreclosure?

Foreclosures continue to occur at an alarming rate in many parts of the country. Many homeowners who obtained subprime mortgages earlier in the past decade or who now find themselves unemployed or underemployed because of the depressed economy are unable or unwilling to make their monthly mortgage payments

State and federal programs for distressed homeowners to assist in loan modifications are available to some but you may not qualify. For others, a short sale transaction is a way to extricate themselves from a home whose value is less than the loan amount, but these can be complicated and may not work for any number of reasons.

As a result, many people facing overwhelming financial pressures turn to bankruptcy as a solution, but can a bankruptcy stop foreclosure?

The Foreclosure Process

Once you miss at least 3-4 consecutive mortgage payments and the lender has sent you notices warning you of possible foreclosure, the lender will generally begin the process to repossess your home. This can take several months and in some instances more than one year.

Minnesota is a non-judicial foreclosure state, meaning that there is usually no court action. When the foreclosure is done without court action, it is called a “foreclosure by advertisement.” Mortgages typically have a power of sale clause allowing an attorney to foreclose on your home. A lender may choose, however, to go to court in a judicial foreclosure to obtain a judgment of foreclosure.

If your home is taken, there are certain reporting and notice requirements before the lender can sell it at an auction conducted by the sheriff, usually at a greatly reduced price. In Minnesota, as long as it’s a foreclosure by advertisement, you are not subject to a deficiency judgment if the sale is for less than the loan amount. This means that most of the time, as long as there is only one mortgage, a homeowner in Minnesota can walk away from a house free and clear. If there is a second mortgage, however, watch out. These days the holders of second mortgages are suing people in large numbers after the first mortgage has foreclosed. Sometimes they don’t even wait for the first mortgage to foreclose if the payments are not up to date.

Accordingly, if you are facing foreclosure, can a bankruptcy stop the foreclosure or benefit you in some way?

Can a Chapter 7 Bankruptcy Stop a Foreclosure?

Whenever you file for bankruptcy protection under a Chapter 7, an automatic stay of all legal proceedings, including foreclosures, goes into immediate effect. A Chapter 7, if you qualify, allows you to discharge most if not all of your debt.

Unfortunately, the lender is allowed to file a motion to lift the automatic stay as it pertains to your property as the lender can otherwise suffer economic harm. In this instance, a Chapter 7 will only temporarily delay the foreclosure.

It is very difficult to fight the motion to lift the automatic stay. About the only practical way to stop the motion is to get the payments up to date or make arrangements to bring the payments up to date. In a Chapter 7 the automatic stay ends when the discharge is granted, usually around three months after the case is filed. This means that most of the time lifting the stay doesn’t mean much anyway, because the stay was going away by itself.

At the least, you may be able to save thousands of dollars while not making any mortgage payments and take the time to look for alternative housing. Once the foreclosure is stopped, many lenders are very slow to get it started again. While the automatic stay officially only stops things for about three months, you will very likely gain much more time than that.

Can a Chapter 13 Bankruptcy Stop a Foreclosure?

The other bankruptcy filing available to a homeowner is Chapter 13. Under this plan, you must submit a repayment plan that includes all your creditors and that is approved by the bankruptcy trustee. The automatic stay also goes into immediate effect once you file.

Unlike a Chapter 7, this chapter allows you to keep your home but you must have proof of sufficient income to not only maintain the current mortgage payments but to make up the arrearages over the life of the repayment plan. Many repayment plans are for the maximum 60 months. Under a Chapter 13, then, you may be able to stop the foreclosure so long as the indicated conditions are met.

In a Chapter 13 it might also be possible to do a lien strip. We’ll know for sure when the Eighth Circuit Court of appeals finally decides the Fisette case. A lien strip would benefit homeowners with multiple mortgages. It would eliminate payments on all mortgages except the first one. If your home’s value has declined and the first mortgage has secured all the home’s equity, if any, then the other mortgages would be considered unsecured debt and will be discharged.

In any case involving a foreclosure, consult with an attorney to explore all your legal options.