Keeping Your House in a Chapter 7 Bankruptcy

Can the lien of the second mortgage be removed from my house? - Bankruptcy

Of all the questions I get asked, “can I keep my house” could be the most frequent.  I have a long article about it on my site, probably too long.  For one thing, the web page covers both Chapter 7 and Chapter 13.  For another thing, the article covers the topic of letting the house go as well as keeping it.  Here I’d like to just say a few simple words about keeping your house – the house you are living in – when you file a Chapter 7 bankruptcy.

So here I’m assuming that you are filing a Chapter 7 and you want to keep your house.  If you have any equity in the house, that equity will have to be claimed as exempt in order to keep the bankruptcy trustee from taking the house away from you.  In most cases claiming the house as exempt it  easy.  If the equity doesn’t exceed $10,000 for a single person or $20,000 for a married couple, we can claim the house as exempt under the federal exemptions.  If the equity is more than that, it would be best to use the Minnesota state exemptions which allow for up to $390,000 of equity.

Once we are satisfied that your equity is protected as exempt, the next issue is the mortgages.  We have to list those in the bankruptcy petition like any other debt, and that means that your personal obligation to pay them should eventually be discharged.  I say mortgages in the plural, because most of my clients seem to have two – a first and a second.  Some people I talk with seem to think that if their mortgage obligations are discharged, then the house is free and clear.  That is not the case.  The mortgage liens remain on the house even though the debt or debts themselves are discharged.  Ths means that if you want to keep the house long term after filing a Chapter 7 bankruptcy, you need to plan on continuing to pay the mortgages.

This is a bit of a simplication, and for more detail read my keep my house page.  But what it usually comes down to is being able to claim the equity as exempt and being able to keep making the payments.

It’s Always Something

I hate this.  I have a lease for my office that covers the next two years, but the landlord just announced to me and the rest of the tenants that the place will be torn down in the next few months to make way for some sort of new development.

I love this place.  Maybe I’ll have to chain myself to my desk or something.

It’s like Rosanne Rosannadanna used to say, it’s always something.  https://www.youtube.com/watch?v=Z7gLJr03vNQ

My Number is on a Billboard in Blaine??!!

Nothing is better than being debt free.

I just received a call from someone who says that my office phone number (952-544-6356) is on a billboard on Central Avenue in Blaine, MN near the intersection with 89th St.  Furthermore this caller indicated that it says the fee for filing bankruptcy is $860, which would be way below my usual fee even for the simplest case.

When I run a Google search for $860 bankruptcy in that neighborhood, I find references to a service which apparently is a paralegal outfit.  Their Google Plus page says they have closed or moved.  So did they put up my phone number so theirs would quit ringing or what?

If anybody else has seen this, I’d sure like confirmation that it’s actually there.  Frankly, I’m not sure what I would do about it if it was.

Sales Tax on Legal Services?

Payday loan worries
Now my bankruptcy is going to be taxed?
Now my bankruptcy is going to be taxed?

Minnesota Governor Mark Dayton just announced that he wants to levy a sales tax on legal services.  I think I heard the proposed rate is 5.5%.  Funny, I always thought that the filing fees that we already have to pay were a sort of tax.  Not long ago , under the previous governor, all the filing fees in Minnesota were increased dramatically because of state budget problems.

I wonder if besides the attorney fee he also wants to tax the filing fees.  Since all I do is bankruptcy work, which is always filed in federal court, the filing fees I collect from my clients are all for the federal court.  Query:  Is it constitutional for a state to put a sales tax on a federal fee?

If you are from a state where attorney fees are already subject to a sales tax, I would be interested to hear the details of how it is done in your state and what the clients think about it.  My clients are already about as broke as they can get.   To tell you the truth, this feels very uncaring to me.  I understand that one state legislator is already talking about how this tax is going to help people.

Here’s a link to an article in today’s Star Tribune on the subject.

Seizure of Payments from a Reverse Mortgage

Protecting your home and your stuff

House-Piggy-Bank-and-MoneyI’ve always been reluctant to accept a bankruptcy case where the Debtors have a reverse mortgage.  When I review the paperwork involved with the reverse mortgage, it looks to me as if the homeowners are transferring a bit of the ownership of their home to the mortgage company every month.  I have always wondered if that would be considered a fraudulent transfer by a bankruptcy trustee.

Now today I’ve learned, perhaps a bit late, that a New Jersey court is saying that the payments from a reverse mortgage can be garnished by creditors.  That’s an idea I never thought of, but I am concerned that it might catch on.  In a bankruptcy context this could mean that if a person with a reverse mortgage was to file a Chapter 7 bankruptcy, the bankruptcy trustee would be able to seize all the remaining payments on the reverse mortgage.  The trustee could keep the file open and collect the money from the reverse mortage until all the unsecured debts and all the administrative expenses were paid.  This is a frightening prospect.

When I see those TV commercials for reverse mortgages I cringe.  Seems to me that the advertising is misleading.  The folks I’ve met who have reverse mortgages don’t seem to have much of an understanding of what they got themselves into.

What NOT to do while going Over the Fiscal Cliff

Cliff near Pike's Peak

 

Cliff near Pike's Peak
Watch out for the temptation to under withhold .

Most people I talk to have not heard of the “fiscal cliff.”  Those who have believe it will not affect them.  This includes a husband and wife I met with yesterday.  But when I ran the numbers for them, based on a November 1st article in Forbes, I found that between the two of them their paycheck withholding should go up by about $438 per month.  That is, the net take home pay for the two of them together will be $438 less per month starting January 2, 2012.  That is just a few days from now.  When I tried to warn them and suggested that they should be thinking about how they would deal with this, they blew me off.  They are absolutely in denial about the prospect that this could ever happen.  If we go over the fiscal cliff as scheduled,  this should come as a heck of a shock.

My calculations assume, of course, that no steps will be taken to reduce the impact of the fiscal cliff.

From where I sit it looks like a majority of people are living right on the edge.  For them a drop in take home pay like this will mean they no longer have the funds to pay their credit card debt.  Often when people are in such a situation, they go to their employer and increase the number of exemptions they are claiming for withholding purposes on their paychecks.  They claim more withholding exemptions than they should.  Some increase the number of exemptions to the point that no taxes are being withheld at all, and for them all that is withheld is social security and medicare.  This increases their take home pay, but it is at the cost of not having enough taken out to cover state and federal tax liability.  The income which should have been withheld for taxes is then used to make payments on credit card debt.  Often this is still not enough to get that credit card debt under control.

When it comes time to file their tax return, they find that they owe a tax debt which is too large for them to pay.   Now on top of the credit card debt there is a substantial tax debt.  Eventually they wind up in my office.  I can help get rid of the credit card debt.  But as long as the tax debt is less than three years old, there’s nothing I can do to help with the tax debt.

The worst creditors you can have are the IRS and the Minnesota Department of Revenue.  In almost all circumstances, it is better to stop paying other debts before you stop or reduce the withholding of taxes from your pay check.  Don’t fall for the temptation to unreasonably increase the exemptions you claim for withholding from your paycheck.  That will work for a short time, and then you’ll really wish you hadn’t done that.

This post is for general information purposes only and should not be considered legal advice.  You should consult the attorney of your choice concerning the details of our case.  Reading or responding to this post does not create an attorney-client relationship.  I am a debt relief agency helping people to file for relief under the federal bankruptcy code.

 

A Heart Warming Holiday Thank You

The day before Thanksgiving I received an email from a client whose Chapter 13 we wrapped up in 2011.  He had thanked me profusely at the time back in 2011, but he was still remembering me this year and he wanted me to know it.  He thanked me again, saying he just couldn’t forget how helpful

Jellybean the Basset Hound
Jellybean today, happy and Healthy

I had been.  The reason he is still thanking me is that he credits me with having saved the life of one of his best friends, a Basset Hound named Jellybean.

While it is commonly said that bankruptcy is a lifesaver, it is rare to be able to point to a specific situation and say here’s where I saved a life.  The story in this case goes like this.  When a Chapter 13 debtor has bonuses on a regular basis, the trustee usually requires a provision in the Plan providing that all or part of each bonus be paid into the plan as an additional payment.  When I have a case  where there are such bonuses, the provision I usually put into the Chapter 13 Plan says that when a bonus is received, that has to be reported to the  trustee.  Then the trustee is to determine what portion of the bonus is to be paid into the plan.  This leaves a bit of wiggle room to argue about letting the debtor keep part of the  bonus should a special need arise.

So when this particular client reported to me that he had received an unusually large bonus, my first question was whether anything was going on for which he really needed to use part of the money.  He  said yes but he didn’t suppose there  was much that could be done about it.  It turned out that his Basset Hound, known as Jellybean, was very ill.   Jellybean had a form of cancer that resulted in tumors all over the inside of his mouth.  They could be removed surgically and the chances of recovery were very good, but the surgery was expensive – a couple thousand dollars.  Without the surgery Jellybean didn’t have long to live, and  my client was already resigned to seeing his good friend die.  With all available funds being paid into the Chapter 13 Plan, he definitely could not afford the surgery.  It was very sad because Jellybean was nowhere near the end of what would have been his normal life span.

Well, I said I couldn’t promise anything but let me see what I could do.  This bonus was huge, more than anything we had been expecting, and the funds needed for the surgery would be a relatively small portion.  I contacted a staff attorney at the trustee’s office and made my pitch.  I’ll never forget that conversation.  I went into it without a lot of confidence.  I was just thinking “well it never hurts to ask.”  Somewhat to my surprise the staff attorney remarked that he had a warm spot in his heart for dogs.  He noted that payments into this Plan were becoming much more than we had expected at the beginning.  If I recall correctly, the trustee’s office may also have grabbed a tax refund from my client.  There was now a good chance that 100% of the claims in the case would be paid.  I was instructed to never expect that anything like this would ever be granted again, but this time and THIS TIME ONLY they would let my client keep enough for the surgery. When the surgery was done, we were to provide the trustee’s office with a receipt from the veterinarian proving that was where the money had gone.

I love it when I have some good news for my client, because so very often I’m the guy with the bad news.  When I told my client about this he was delighted and very thankful.  He  scheduled the surgery right away, and Jellybean come through with flying colors.  Now this holiday season my former client is debt free and still has the company of Jellybean, the Basset Hound and his good friend.

I hope this story warms your heart as it does for me.  Merry Christmas, Happy Hanukkah, Happy New Year, and may all your holidays this year be joyous.

The Fiscal Cliff

Cliff near Pike's Peak

I’d be interested in hearing people’s thoughts about whether we are going over the “fiscal cliff.”  Are they going to put some pillows down in the canyon for us to land on, or are we just going to go SPLAT?

Cliff near Pike's Peak
I don’t think I’d want to go over this one.

New Median Incomes for Minnesota Bankruptcy – Again

Minneapolis Federal Courthouse, where Hennpin County Bankruptcy cases are filed
Minneapolis Federal Courthouse . If you live in Minneapolis or the Western Suburbs, this is where your bankruptcy hearing will be.

Whether you qualify for a bankruptcy and what type of bankruptcy you qualify for is largely a matter of what your household income is – gross annual income based upon and calculated from what happened over the past six calendar months.  It seems to me that I just finished posting an update on these numbers, but that was in May and already new numbers have come out – effective November 1, 2012.A table showing the new numbers for Minnesota can be found on my Chapter 7 page.  They are bad news for anyone who lives alone or in a two person household, since the median incomes for one and  two person households have gone down this time.  The median annual income for a family of one dropped by $496 per year and the median annual income for a family of  two dropped by $738.  For everyone else, those in households of more than two persons, the news is good.  The annual median income for a family of three actually increased by $1,300.  For a household of four it went up $409, and for household sizes above four it went up $409.  These increases are of course per year increases, so even the largest – the one for a household of three – is only a bit above $100 per month.

I can’t explain why these numbers changed, or why there is such a difference from one size of household to another.  I can only report that the change did take place.  I have been watching these changes, which usually take place very six months, for several years now.  It seems to me that they usually go up across the board.  The fact that some have gone down this time and that the rest have not gone up by much – to me this seems to indicate serious weakness in the economy.

Whenever I am meeting with a client to go over bankruptcy possibilities, I have to explain that these median income tables are subject to change.  If somebody qualifies now but is close to the edge, haste in getting the case filed might be advisable.   If a person or couple is above the applicable median income, they may try doing the means test.  Usually someone who is just a little bit above the median income can pass the means test and still file a Chapter 7.  I have to caution, however, that above median Chapter 7 debtors are subject to much closer scrutiny by the US Trustee’s office than are those who are below the median.

Lots more can go wrong in a Chapter 7 bankruptcy when the income is above median, even if the Debtors do appear on paper to have passed the means test.  Often it is safer for folks in these circumstances to file a Chapter 13.

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.