Bankruptcy & Social Security Overpayment

I want to say a few words about whether a debt owing to the Social Security Administration for overpayment of benefits can be discharged in a bankruptcy.  Often it can be.

If you have received Social Security you know that several factors, many of them beyond your control, can affect whether you are eligible and for how much.  This is especially true of disability benefits.  A change in status can end your eligibility or reduce the amount. It’s all very complicated and hard to understand – especially if you are ill.

The Social Security Administration is a big and cumbersome organization that makes lots of mistakes.  Lots of times they pay benefits when they are not supposed to.  Often this happens because they can be very slow in processing information they receive from beneficiaries.  The impression I have is that most beneficiaries are very careful about complying with requirements that they report any change in their circumstances.  If you report the change and the benefits keep coming, most people would assume that the change didn’t make a difference.  Later, however, you may be shocked to receive a nasty letter from the Social Security Administration.  The letter claims that you have been overpaid and demands repayment.

Suddenly you have a very large debt to a federal government agency.  Nobody is more powerful. They might start withholding from the benefits you are still eligible for; they might seize your tax refunds; or they might even start garnishing your wages.  Most people assume that like the usual student loans and taxes, there is no way to make this go away.  This is what I assumed too the first time someone came to my office with one of these letters.

I was surprised to learn when I did a little research that many if not most of these Social Security overpayment claims can be discharged in bankruptcy.  When a debt like this is listed in a bankruptcy, it is going to be discharged unless the Social Security Administration successfully objects.  In order to figure out whether to expect an objection, it is helpful to check Social Security policies as published in their on line Program Operations Manual.  The guidelines as to when such an objection should be filed are in GN 02215.196 of  the manual.  They will object if they believe they can prove that the overpayment was a result of fraud or misrepresentation.

They use a three part test to define what they mean by misrepresentation.  There must have been 1) an overpayment caused by false representation, 2) made with the intent to deceive and 3) upon which the Social Security Administration relied to it’s detriment.

The typical person I see in my office who with one of these overpayment letters isn’t anywhere close to satisfying the above test.  This person hasn’t told any lies and certainly wan’t trying to deceive anybody.  There was no intent to cheat the government out of anything.  It was more a matter of just stumbling into the situation.  If this is where you find yourself, you might want to give me a call.  The chances that a bankruptcy can make the whole problem just go away are very good.

Minnesota State Exemptions Still Leaking Assets Like a Sieve

When you file a Chapter 7 bankruptcy, ownership of all your assets all the way down to your socks passes to a trustee appointed by the court.  The only way to avoid losing your shirt and most everything else you own is to claim the assets as exempt.  If you qualify to use the federal exemptions, it is very likely that everything you own will be exempt and you will keep all your assets.  That’s the result I always want to see – my client gets rid of his or her debts but keeps all his or her stuff.

The only problem with the federal exemption list is that it has a low number for the amount of homestead equity which can be exempted.  If  someone has more equity than can be protected by the federal exemptions, the only other choice is to use the state exemptions.  The Minnesota state exemptions will protect up to $$390,000 of equity in a homestead, but other than that those exemptions leave a lot to be desired.  They are hopelessly out of date in many respects.

For example, the only electronics clearly allowed as being exempt are a radio, a phonograph and television receivers.  Notoriously, computers are not exempt.  Neither are cell phones, tablets, game machines, printers, monitors or any other device that isn’t a TV, radio or phonograph.

There’s no exemption for jewelry, unless it’s a wedding ring that was actually present at the wedding ceremony.  There’s no exemption for guns, sporting goods such as bicycles or exercise equipment, or collectibles of any kind.  Household furnishings, clothing and appliances are exempt, but a riding lawn mower is not considered to be an appliance.  Money in your checking account or savings account is not exempt unless it can be traced to a pay check from employment which was deposited within the last 20 days.  There’s no exemption for any kind of a tax refund which may be owing or which may have accumulated as of the date of filing the bankruptcy.  Bankruptcy trustees routinely present my clients with a form which signs over their tax refunds.

Several weeks ago two bills were introduced at the state legislature in St. Paul to try and correct some of this.  One of them added exemptions for the following, all of which currently are absent from the exemption list:

  • Computers, tablets, printers and cell phones as part of the household goods exemption
  • Jewelry up to a value of $2,817.50 – replacing the existing wedding ring exemption
  • A new section exempting $3,000 of tools, snow removal equipment and lawnmowers
  • A wild card exemption which could be used for up to a $1,250 value of property not fitting into any other exemption; and
  • Health savings accounts (HSA) and medial savings accounts up to a value of $6,500.

When I heard last week that the legislature had passed an amendment to the exemption statute, I got quite excited.  I thought it must be the bill I just described above.  I was quite disappointed to learn that it was another bill which only added one provision: an exemption for health savings accounts and medical savings accounts up to a value of $25,000.  It’s nice that the amount of the exemption is so high, but I almost never see anyone with an HSA which has any more than a few hundred dollars in it.

So except for the new exemption for the HSAs, we are still stuck with all the same old problems with the Minnesota state exemptions.  Oh well, at least the antique radio in my office is exempt.

 

Named in Top 25 Minneapolis Bankruptcy Lawyers Second Year in a Row

In 2016 when I was first contacted by Expertise.com I was very skeptical, as evidenced by what I posted here at that time.  I have received all sorts of scam emails from one outfit or another which try to get attention by announcing that they are giving me some sort of award.  Often all they are trying to do is sell me a meaningless plaque to hang on my wall.  Sometimes they are offering to list me in some sort of Who’s Who book, for a fee of course.  Other times they are fishing for personal information such as a bank account number or a password.

Another reason for my skepticism is that after my typical Minnesota upbringing, I find it very hard to accept praise or gratitude of any kind.  My default response to anybody saying anything nice about me is to respond by saying it was no big deal or by minimizing it in some way.  When someone says “thank you” to me, instead of just saying “you’re welcome” I tend to launch into some long explanation as to why I don’t deserve to be thanked.  Having become aware of this, I have actually been practicing saying “you’re welcome,” and it’s not easy.

After passage of some time and after I’ve done some investigation, I have come to the conclusion that Expertise.com is legitimate.  They made a serious effort to take a look at the bankruptcy lawyers in the Minneapolis area and rate them based on reputation, credibility, experience, availability and professionalism.  To them I wish to say thank you and I’m honored.

Motorcycles, Boats or Horses Can be Toxic to your Chapter 7 or Chapter 13 Minnesota Bankruptcy

I recently posted on Google Plus about how certain things tend to be toxic to a possible bankruptcy. The most common one I see is a Harley Davidson. Other items in this category would include boats and horses, especially if they are fancy and not paid for. This statement resulted in questions being asked about exactly what I meant.  If the problem is that a Harley, a boat or a horse are assets which would be lost in a Chapter 7 bankruptcy, then wouldn’t it be better for them to not be paid for.  If they weren’t paid for, after all, they wouldn’t be much of an asset.

My answer was that such items make a bankruptcy difficult whether paid for or not. If they are paid for, they are assets that very likely would be lost in a Chapter 7 or would increase the required payments in a Chapter 13.

If they are not paid for, you have a situation where the Debtor will want to tell the bankruptcy trustee that he or she can’t afford to pay debts, except that somehow they CAN afford to keep paying for the Harley, the boat or the horses. This does not play well. The only thing to do if they really need the bankruptcy is to sell or surrender before filing, or state in the bankruptcy petition an intention to surrender the items after the case is filed.

Many have been the times when I have had a potential client disappear never to be heard from again when I said that the Harley has to go. There’s a whole subculture where any kind of misery is preferable to giving up the Harley. Boats are usually a bit easier to let go, but horses are also very hard to give up.

One exception might be a case with a 100% Chapter 13 plan. That would be a plan where 100% or the unsecured debts are to be paid. Since the bankruptcy trustee can’t ask for more than 100%, the Debtor would have more wiggle room when it came to something like keeping a motorcycle. Even then the trustee would not like it, but more than likely the trustee could not prevent it. I see very few cases where the payout is 100%. Most people who can afford to do that don’t need a bankruptcy.

This post is for general information purposes 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.

Consumer Warning from NACBA

Here verbatim is a consumer warning I have been asked to post from the National Association of Consumer Bankruptcy Lawyers.

Telephone-Scam Soliciting Wire Transfers Prompts NACBA and Vermont Attorney General to Issue Consumer Warning

Across the country, consumers are falling prey to a new scam targeting people who have filed for bankruptcy and others just getting started with the process. Bankruptcy attorneys are joining forces with public officials to sound the alarm bell to unsuspecting consumers.

The con artists are using software that “spoofs” the Caller ID system so that the call appears to be originating from the phone line of the consumer’s bankruptcy attorney. Victims of the scam are being instructed to immediately wire money to satisfy a debt that supposedly is outside the bankruptcy proceeding. Some consumers have been threatened with arrest if they fail to wire money to pay the debt.

In some instances, the perpetrators are using personal information from public filings to identify consumers, assume the identity of their attorneys and sound more convincing by phone. These calls are typically placed during nonbusiness hours, making it difficult for clients to verify the call by getting in touch with their attorney to ask about it.

The National Association of Consumer Bankruptcy Attorneys (NACBA) and its individual members want consumers to know that under no circumstance would a bankruptcy attorney or staff member telephone a client and ask for a wire transfer immediately to satisfy a debt. Nor would the bankruptcy attorney and staff ever threaten arrest if a debt isn’t paid.

Consumers should be advised that legitimate debt collectors and agencies cannot threaten arrest in order to satisfy. If you or a family member receive this kind of call, the best thing to do is to hang up and contact your bankruptcy attorney as soon as possible. Do NOT give out any personal or financial account information to the caller.

Bankruptcy is Legal – But is it Moral?

I usually don’t give much thought to the question of whether filing a bankruptcy is the moral or ethical thing for a person to do.  I decided a long time ago that it  is, at least for my clients in the kind of cases that I accept.  For one thing, I don’t recommend bankruptcy unless it’s the last resort.  In other words, if the client has other alternatives, I recommend against filing bankruptcy and suggest that other avenues be tried first.  I have referred hundreds of people to Lutheran Social Services Financial Counseling and to Family Means financial counseling, my two favorite alternatives to bankruptcy.  Lots of debt settlement companies are operated by crooks, and you really have to watch out for them; but these two are strictly legitimate.

Most of my clients are absolutely overwhelmed and buried in debt.  If they are going to keep paying their unsecured debt, they don’t get to eat – and vice versa.  I believe that a person’s first duty is to himself or herself and his or  her family, and his or her second duty is to the community.  Under both duties, it is your obligation to take care of yourself well enough that you and your family don’t become homeless wards of the state.  If you can at least support yourself, you are saving the community the cost of supporting you. Your duty to continue paying your debts to a bunch of bankers is much lower on the hierarchy of values, and the value of self preservation will trump that every time.  If you need to file a bankruptcy to be able to properly care for yourself and your family, it could even be a moral obligation that you do so.

In biblical times all debts were canceled every seven years. (Deuteronomy 15:1-2) Everyone was given a fresh start at the same time every seven years whether they were current with their debts or not. Even citizens who had sold themselves into slavery were set free in the year of jubilee, which occurred every fifty years. (Leviticus 25: 10-13) Selling oneself or one’s family into slavery was apparently one approach to raising money to pay debt.  We no longer have slavery these days, but sometimes what I see my clients doing prior to filing bankruptcy seems to have similarities to slavery.  Seems like slavery to me if you spend all your time and resources working in the service of Capitol One or Discover.   It also seems to me that the sort of debt forgiveness practiced in Biblical times has similarities to bankruptcy today – except bankruptcy can usually be done only every eight years.

Here in the United States, bankruptcy is provided for in Article 1, Section 8, Clause 4 of the United States Constitution.  This authorizes  Congress to enact “uniform laws on the subject of Bankruptcies throughout the United States.”  Our founding fathers obviously thought that Congress should have the power to provide laws for the kind of safety net that is found in bankruptcy.  Under those laws for most individuals the only way to get your debts canceled is to file a Chapter 7 bankruptcy or Chapter 13 bankruptcy.  Even then some debts (most taxes, child support, alimony, most student loans, etc.) are not dischargeable.  

If things have gotten so bad that the debtor really can’t pay, bankruptcy is a good thing for the debtor and the creditor too, since the creditor is now able to stop wasting resources trying to collect. Large debts can be like quick sand. The harder one tries to get out, the deeper one gets.  Most bankruptcies seen in my office are filed long after they should have been.

This post is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.

Close any Extra Bank Accounts Before you File Personal Bankruptcy

When it comes to what bank accounts you have open at the time of filing a personal bankruptcy, the adage “keep it simple” certainly applies.  In either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the trustee is going to want to see a statement for every bank account that you have open on the day the case is filed. The more bank accounts you have, the more complicated that can get.  It seems as if every time I have a case where my client has more than three bank accounts, that client has trouble getting the required statement for at least one of them.

If the bank is also one of the creditors which you have listed in your case, you might find them particularly uncooperative when you try to get a statement. I was making a video on another subject when I made a few parenthetical remarks about how, before filing personal bankruptcy, you should close as many bank accounts as possible.  I thought the remarks were good enough to post them as a separate video on their own.  This is that video: There are enough other things that can go wrong in any bankruptcy case, without having to worry about not being able to get a statement from some obscure bank that has no offices nearby and which has shut down your on line access. In this video I explain that prior to filing a bankruptcy case, it is prudent to close as many of your bank accounts as possible. It’s best to go into your bankruptcy case with only has one bank account – a checking account at a bank or credit union which is not a creditor.

Your bankruptcy lawyer should know where the best places to bank are from a bankruptcy perspective. Some banks and some credit unions are more bankruptcy friendly than others. We have one bank in particular in the Twin Cities Minnesota area which will freeze your accounts when they find out you filed a bankruptcy, and they tend to do that whether you owe them money or not. That bank of course is to be avoided. This posting is for general information purposes only and is not legal advice. It does not create an attorney-client relationship.

I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

Dave Kelly, Kelly Law Office, Minnetonka, MN 952-544-6356

Avoid Having your Bank Accounts Seized when you File Bankruptcy in MN

I don’t know what banks and credit unions are doing in other parts of the country.  I speak here only of what I have seen and heard about here locally in Minnesota, and specifically just the Twin Cities area. Here in Minnesota, in the Twin Cities area, there is a substantial danger that your savings and checking accounts will be seized or frozen by your bank or credit union when you file a personal bankruptcy.  I have always believed it to be a despicable thing to do.  Some banks and credit unions are worse than others at doing this.  When you choose a lawyer to handle your bankruptcy case, you might want to make sure that he or she is a person with enough experience to be aware of this problem and how to head it off before it happens.

The problem is this.  If the bank or credit union is one or your creditors, you can expect that institution to seize your accounts as soon as they are notified of the bankruptcy.  If this is not planned for it can result in quite a surprise – checks bouncing, a debit card that has stopped working, and the evaporation of money you thought you had.  There are some banks that are worse than others  when it comes to this problem.  They might freeze your account even if they are not a creditor, especially if your account has a fairly large sum of money – something in excess of $3,000.  I don’t want to mention them bank by name here, but I believe I did mention one in this video.

You should expect your bankruptcy attorney to coach and advise you as to how this is to be avoided. What I tell my clients is that if they have an account with a bank or credit union which they owe money to, that account should be closed well in advance of the filing of the bankruptcy case – whether it’s a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. If you don’t close that account, the bank or credit union will claim a right of setoff against your money in the account, which is a fancy way of saying that they will seize the money.  There are certain banks where all accounts should be closed if at all possible, whether you owe them money or not. Once they seize the money you won’t get it back – or at least usually won’t.

So the thing to do is to close all such accounts before you file your bankruptcy case.  It takes planning of course. I’m not saying you should try to live without a checking account.  What you need to do is open an account at a bank which is NOT one of your creditors, and get all your automatic deposits and automatic withdrawals up and running with the new account before we file your bankruptcy case.  I believe that the best banks to use for this purpose are the small neighborhood banks – for example a bank with a name that starts with “State Bank of …” or “Citizens Bank of …” The process of getting the new account set up and getting the auto deposits and auto payments moved over to and set up at the new bank may take a few weeks, but I consider this to be part of the normal planning and preparation that goes into making your case as painless as possible.

Getting Rid of that Judgment Once and For All

When you read about bankruptcy you are very likely to see quite of bit of carrying on about stopping garnishment, stopping foreclosure, ending harassment from creditors, stopping those nasty phone calls, and in general making the debts just go away.  Bankruptcy tends to be good for all those things.  You may not see as much about getting judgments cleared from your record, however, because the discharge of your debts from the bankruptcy court does not automatically do that.

The bankruptcy court discharge is an order from a bankruptcy judge which eliminates most personal liability for unsecured debts.  It contains among other things an order addressed to your creditors requiring that they make no further collection efforts.  It just requires the creditors to stop.  For the most part, it doesn’t require the creditors to take any other action.  One of the things it does not require is that they file a satisfaction of judgment with the state district court if they have a judgment against you.  So when your bankruptcy is done, the creditors will leave you alone.  You won’t hear from them again.  If the creditor has a judgment against you, the creditor is prohibited from trying to collect anything on the judgment.  But the judgment itself just sits there and continues to be a matter of public record just as it was before the bankruptcy.

Most of the time for most people that is a big “SO WHAT?”  As long as the creditor is paralyzed and can’t collect, who cares whether the judgment is still on the record?  After all, the judgment will expire when it is ten years old, and the bankruptcy discharge definitely prevents the creditor from renewing the judgment before it expires.  But sometimes a lender will care if you are trying to get a mortgage or refinance an existing mortgage.  In certain odd instances an employer or future employer might care too – judgments don’t look the best on a background check.

If you should be one of the relatively rare folks who really needs to get the judgment cleared from the state court record, there is a procedure for doing that.  It is not part of the federal bankruptcy statute, but is a matter of state law.  In Minnesota, the process is laid out in Minnesota Statutes Section 548.181.  The clerk of court in most Minnesota counties can provide you with a form for this and a set of instructions to go with it.  The form and instructions for Hennepin County can be found here.  The statute is fairly easy to understand and reads as follows:

“548.181 DISCHARGE OF JUDGMENTS AGAINST BANKRUPTCY DEBTORS.

Subdivision 1.Application for discharge.
 A judgment debtor who has received a discharge under United States Code, title 11, or an interested party, upon paying a filing fee of $5 for each judgment, may apply to the court administrator of any court for the discharge of all judgments entered in that court against the judgment debtor that were ordered discharged by the bankruptcy discharge.
Subd. 2.Application requirements; service. 
An application under subdivision 1 must identify each judgment to be discharged, must be accompanied by a certified copy of the judgment debtor’s bankruptcy discharge or a certificate by the clerk of the United States Bankruptcy Court of the discharge, must state the time the judgment creditor has to object as specified in subdivision 3 and the grounds for objection as specified in subdivision 4, must be served at the expense of the applicant on each judgment creditor either:(1) in the manner provided for the service of a summons in a civil action and must be accompanied by an affidavit of service; or(2) by certified mail to the judgment creditor’s last known address as it appears in the court record, and must be accompanied by an affidavit of mailing.
Subd. 3.Objection to discharge.
 The court administrator, without further notice or hearing, shall discharge each judgment except a judgment in favor of a judgment creditor who has filed an objection to discharge of the judgment within 20 days after service of the application on the judgment creditor. An objection to discharge of a judgment must be served on the judgment debtor in the same manner as an answer in a civil action.
Subd. 3a.Certification of discharge. 
Upon receipt of a filing fee of $5, the court administrator shall certify to the judgment debtor or other interested party the judgments against a person that have been discharged by the administrator.
Subd. 4.Court order. 
If a judgment creditor objects to the discharge of a judgment, on motion of the judgment debtor, the judgment creditor, or other interested party, the court shall order the judgment discharged except to the extent that: (1) the debt represented by the judgment was not discharged by the bankruptcy discharge; or (2) the judgment was an enforceable lien on real property when the bankruptcy discharge was entered. If the judgment was an enforceable lien on some, but not all, real property of the judgment debtor, the discharge shall only be entered as to real property not subject to an enforceable lien.

 

That looks pretty easy doesn’t it?

Well, IT’S NOT AS EASY AS IT SEEMS.  Here’s the catch. Even though the law clearly states that the filing fee is only $5.00, Hennepin County has started charging a regular district court filing fee of $324 as well as the $5.00.  As far as I know, they are the only county in the state that is doing that, but don’t be surprised if you run into it in some other county.  I expect that the idea is going to spread.  You have to pay one filing fee per judgment, so if you have a lot of judgments to get rid of this could really run into money.  It’s probably a violation of law for them to be doing this, but for a few hundred dollars nobody so far has been able to afford to challenge it.

Around the year 2000 the court clerks across the state came up with forms and instructions for this that are available to the public.  Since then nobody has hired me to do this procedure. You definitely need a lawyer to do the bankruptcy itself, but once the bankruptcy is completed most people can do this judgment discharge application themselves.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  It is recommended that you consult the attorney of your choice concerning the details of your case.

Minnesota Bankruptcy Court Still Open – Employees Apparently Working Without Pay

Judge Gregory Kishel, Chief Judge of the U.S. Bankruptcy Court for the District of Minnesota, said last week at the bar association’s Bankruptcy Institute that the bankruptcy court for our state had enough money to make payroll and pay expenses through Monday October 14th or thereabouts.  After that he said it was his intention and the intention of all the staff to continue working without pay.  As close as I can tell, that must be what they are doing.  I just got a routine legal notice from the court in my email about two hours ago.  So I know that somebody is there and on the job right now.

I don’t know how long they can go on like that, but the way the judge was talking it sounded as if they were prepared to stick it out for the duration.  This has been a good thing from my perspective, because I have been able to continue my work with very little noticeable side effects from the shutdown.  So far the only thing that has come up has been that I found a mistake in a proof of claim form which the IRS filed in one of my Chapter 13 cases.  When I picked up the phone to call the IRS guy who had prepared the claim form, I got a message that the IRS office was closed because of the government shutdown.

The news I heard this morning before coming to the office was all about possible default on the national debt unless something is done in the next few hours.  That would mean, depending on who one listens to, anything between possibly almost nothing at best and a terrible crash and depression like that of  1929 at worst.  So in looking for a graphic to go with this post, I have decided to pull out my picture of the fiscal cliff.  Hard to know what is really going to happen.  Guess I’ll fasten my seat belt and hang on for the ride.

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