Minnesota Bankruptcy Attorney David Kelly

July 2, 2014

No Inflation in Housing, Home Furnishings or Car Costs Since 2012?

Every two years as long as I can remember the Minnesota exemptions were increased. But guess what, this year – 2014 – the Minnesota Department of Commerce has announced that there will be no increase in the Minnesota State exemptions. Here’s a video I recently posted about this. Some day I’ll get the lighting right when I do these videos.

This is based on some statistics that they have showing that apparently there has not been enough inflation to trigger any increases. This would indicate that the cost of buying a car has not increased, the cost of buying a home has not increased, and the cost of household goods and furnishings and appliances has not gone up.

I am inviting your comments and feedback. Has there really been no increase in the cost of buying a house, the cost of buying a car or the cost of buying home furnishings and appliances during the past two years? If those costs have gone up in other parts of the county, have they not also increased in Minnesota?

Do you think the MN Department of Commerce is right, or have you experienced some price increases in the past two years?

This 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.

June 28, 2014

What if You Have a Rental Property and Need to File Bankruptcy?

Here’s a video I posted at YouTube where I comment about how rental properties should be dealt with in a personal bankruptcy. I talk primarily about Chapter 7 personal bankruptcy, but I also get into Chapter 13 bankruptcy to some extent. Unless it is properly handled, the filing of a bankruptcy may result in the property being taken away from you. It’s complicated and you would be well advised to find and consult a good lawyer about the exact situation you have with your rental property. The video is only three and a half minutes long, and only scratches the surface if it even does that.

These days it has become common for families to have a former home that they could not sell. Maybe they outgrew the old house, or maybe they had to move because of their employment. Not being able to sell the old place, the best they could do was to rent it out. It seems as if most of the time these places have a negative cash flow, although not always.

When the time comes to look into filing a personal Chapter 7 or Chapter 13 bankruptcy, the rental property can become quite a problem. Typically the trustee will not find it acceptable to say on your budget sheet that you intend to continue to pay the expenses of a property that is losing money.

Even if the place has a positive cash flow, trying to keep it in a bankruptcy situation tends to be more trouble than it’s worth. The extra income might be just enough to disqualify you from filing a Chapter 7 bankruptcy, especially if you have stopped paying the mortgage on the property.

The best way to hang on to a rental property, if that is something that you really want to do, may be to do a Chapter 13 bankruptcy instead of a Chapter 7. For that to work you would need to have the equity in the property not amount to much and to have it producing a positive cash flow.

Unless it is properly handled, the filing of a bankruptcy may result in the property being taken away from you. It’s complicated and you would be well advised to find and consult a good lawyer about the exact situation you have with your rental property.

This is for information purposes only and is not legal advice. Neither the video nor these comments create an attorney-client relationship. Please consult the attorney of your choice concerning the details of your case. I am a debt relief agency. I help people file for relief under the federal bankruptcy code.

June 18, 2014June 21, 2014

Hope you like the New Look of my Web Site

Well, it took about three weeks to complete, but I think I now have all the pages on my web site converted to the new design. I have tried to make the pages look brighter and more optimistic in color scheme and tone, and easier to read. In particular, I’ve tried to make the pages more friendly to mobile devices. A little over two years since I hired a gentleman to redesign my entire site. I must have liked the design he chose, because I said yes to it. But it certainly did not grow on me over time. The longer I looked at it the less I liked it. I started to feel that it was too dark and foreboding, almost Gothic, with it’s almost black background image and dark brown graphics. It seems to me that people with financial problems are probably already depressed enough without looking at something that gloomy. The other thing was that I was having trouble making changes and updating content.

There were many things about my own site that I could not figure out when it came to editing. I went back to the website creation software I had been using before I hired the expert – Microsoft Expression Web. I checked for updates and found that there were none. In fact Microsoft has discontinued the program and is now giving it away for free. I found a template that looked as if it could accommodate what I had in mind, and then went to work rebuilding the entire site one page at a time. It can be very tedious, but I started to enjoy it after while.

As I went along I updated all the content that needed updating, and added a bit more content here and there. I found errors in the HTML code that needed to be corrected, and did that. Then I tested the pages in Internet Explorer, Firefox and Chrome. For reasons I can’t understand things would look straight in one browser, and be not lined up right in another. I also tested the pages on my Samsung Galaxy and my Kindle Fire. Finally I started to launch the pages and the new images one item at a time.

Looks to me as if I have it all now. But if you see something that looks goofy, I wish you would let me know.

May 15, 2014

Who Owns and who gets to keep the Tax Refunds in a Chapter 7 or Chapter 13 Bankruptcy?

Well, tax season is finally over or at least winding down. Most of my clients have already received their 2013 state and federal income tax refunds. The Minnesota property tax refund and Minnesota rent credit refund won’t be sent, however, until later in the year. Who owns the tax refunds is always a big issue in any kind of personal bankruptcy, whether it’s Chapter 7 or Chapter 13. This is because refunds not yet received are considered an asset, even the tax refunds for this year that won’t be received until next year. Most people don’t ordinarily think of these as assets, because they may be way out of reach at least for now. But the Chapter 7 and the Chapter 13 bankruptcy trustees definitely count them as assets.

In a Chapter 7 bankruptcy the starting point in answering the above question is that the bankruptcy trustee owns the refunds. This can be said because upon the filing of a Chapter 7 bankruptcy, ownership of everything – all the Debtor’s assets right down to his or her socks – is transferred to the trustee. My job as a lawyer representing the Debtor is to keep the trustee from being able to keep as much of the assets as possible by claiming those assets as exempt. Anything that’s exempt can’t be kept by the trustee. When you see the term “no assets case,” that means it’s a case where all of the assets were exempt so that the trustee was not able to keep anything. Most of the Chapter 7 cases I file fall into this category. The ownership only passes to the trustee in theory, and then it comes right back to my client. A relatively painless process.

In a Chapter 13 bankruptcy there is no passage of ownership to the trustee, but the trustee takes the assets into account when determining what the payments are to be in the Chapter 13 Plan. If there are any non-exempt assets, the payment plan must provide enough so that the unsecured creditors receive an amount equal to at least the amount of the non-exempt assets. This is referred to as the “best interests of the creditors rule.” When we know there are going to be non-exempt assets, sometimes a Chapter 13 can be preferable. This is because it is usually easier to keep an asset and make some monthly payments than it is to give up the entire asset.

When it comes to tax refunds as you can see, the key to happiness in a Chapter 7 or Chapter 13 bankruptcy is to be able to claim them as exempt. This can often be easier said than done. First of all, if you are claiming the Minnesota State exemptions, there is no exemption for tax refunds. There just was a case where the Debtor was claiming that the property tax refund was “relief based on need” and therefore exempt under the Minnesota state exemptions, but the court said no; so there remains no exemption under the Minnesota state exemptions for any kind of tax refunds, at least not that I know of.

Luckily most of my clients qualify to use the Federal exemptions. Under the federal exemptions, each Debtor has what we call a wild card exemption under which up to $12,725 of anything can be claimed as exempt. When the parties are married and filing a joint case, each of them has a wild card (also called the catch all) exemption of up to $12,725. It is often said that a married couple claiming the federal exemptions gets to double their wild card. This is absolutely not true, and you really have to be careful about that kind of thinking.

When a married couple file a joint Chapter 7 or 13 case and claim the federal exemptions, the Debtor has a wild card exemption and the Co-Debtor has a wild card exemption – but that exemption does not double. I often find myself pulling out a note pad and making a “his” and “her” column to try to keep track of this. Assets owned by “him” and claimed as exempt under the wild card go in one column and assets owned by “her” and claimed as exempt under the wild card go in the other. Joint assets can be equally divided between the columns. Neither column can total over $12,725. And beware: a lot of stuff you may think of as joint may be looked upon differently by the trustee.

When the assets include tax refunds, the question arises as to which of the two columns the tax refunds belong in. Years ago I assumed that if the tax return was joint, then the refund should be split evenly between the spouses for purposes of claiming it as exempt. Turns out this is not how the 8th Circuit Bankruptcy Appeals Panel sees it. In the case of In re Carlson decided in 2008, they decided that the tax refunds have to be prorated between the spouses based on the each spouse’s income. So if one spouse earned 80% of the income, then 80% of the refunds gets attributable to that spouse. If one of the spouses is not working, then all the refunds belong to the spouse who works. This can obviously be a problem if allocating it that way runs one spouse’s wild card exemption above the magic $12,725 level.

It’s complicated. Not properly claiming the exemptions for the tax refunds is one of the most common mistakes made by people who file their own case without a lawyer. Most of the time I can manage to claim all of the tax refunds as exempt so my clients can keep them, but sometimes I just can’t get it all. For one thing, there are always other assets in addition to the refunds for which the wild card exemption is needed.

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.

March 26, 2014

A few tips about Tax Refunds in Chapter 13 Plans

It’s tax time – again. For many, including myself, it can be a time of fear and loathing. Given a choice between having a colonoscopy or going to see my accountant to prepare my annual taxes, I would probably choose the former. I’m relieved to be able to say that mine are done and filed. So glad to have that over with. Since I’m self employed, I almost always have to pay in.

For my Chapter 13 clients tax time has another layer of complexity, trickiness might be a better word. Most Chapter 13 plans in Minnesota are required to have a provision that says the Debtors are to provide copies of all annual state and federal income tax returns to the Trustee’s office as soon as the returns are filed. If they are to receive a refund, the provision usually allows married debtors filing jointly to keep the first $2,000 of the refunds, and allows individual filers to keep the first $1,200 of the refunds. After those allowances, the balance of the refunds is to be paid into the Chapter 13 Plan as an additional contribution. This contribution benefits the creditors, but usually has no particular effect on the monthly payment plan for the Debtors. After making this extra contribution, in most cases the monthly payments under the Plan continue unchanged and on the same schedule.

The preferred method of sending the tax returns to the Trustee is now to make the return into a PDF and email it to an email address that the Trustee’s office has designated for that purpose. After that the Debtors should wait for a letter from the Trustee’s office which will tell them how much of the refund should be mailed in. The letter is usually sent promptly, although it comes by snail mail. Since I tend to be copied with both the emails and the snail mail, I have had quite of bit of this correspondence arriving on my desk over the past few days. So far this year there has been only one case where I disagreed with the way the Trustee’s office was calculating how much my clients were to send in. When that happens, I have always been able to straighten things out with a of series of email exchanges with the staff person who did the calculations.

Here’s a few important things to know about how they calculate exactly how much the extra contribution from the tax refunds is supposed to be. First of all, if you get a refund from one level of government – for example the feds – and have to pay in to the other level of government – for example the state, usually you can expect the amount you had to pay in to be deducted from the amount of the refund. If you paid to have an accountant or other preparer to do your returns, be sure to send the bill for the tax preparation in to the Trustee’s office along with the tax returns. At least this year I have been seeing the Trustee’s office allow a credit for the cost of tax preparation. In one letter that just arrived on my desk, they allowed a credit for a $96 processing fee from TurboTax.

If you find your refund to be a whole lot more than the part you are allowed to keep, I’ve never seen anybody get in trouble for adjusting their wage withholding so that next time the refund won’t be so large. Such adjustments can involve a lot of trial and error, however, and you might find it pretty hard to get it just right. It’s easy to overshoot the goal and wind up having to pay in to the IRS and Department of Revenue. Like Garrison Keillor says, be careful.

Keep in mind that everything I say here only applies to Minnesota cases. I would expect that practices vary quite a bit around the country concerning this topic. And as I always say, this post is for general information purposes only. It is not legal advice and does not create an attorney-client relationship. Please consult the attorney of your choice concerning the details of your case.

March 26, 2014March 26, 2014

Higher Median Incomes Effective April 1st

As explained on the Chapter 7 page and Chapter 13 page of my site, most bankruptcy eligibility questions key off how your income compares to the median income levels set by the Justice Department for the state in which you live. The justice department has a new median income update which becomes effective April 1, 2014. The income levels for all family sizes in Minnesota have gone up by at least another $1,000 or so per year. The new median incomes are are follows:

1 Person	2 People	3 People	4 People	5 People	6 People	7 People
$49,592	$65,398	$78,715	$92,277	$100,377	$108,477	$116,577

Add $8,100 for each individual in excess of 7.

Every case is different, but in most cases if your gross income annualized over the six months before filing comes to less than the median for your household size, you should qualify for a Chapter 7 bankruptcy. If your income is higher than the median, there are other options. One option is to try doing the means test. If you pass, a Chapter 7 might still be possible. If not, your most likely choice would then be to do a Chapter 13 bankruptcy.

Even if you pass the means test, sometimes a Chapter 13 is still a better idea. It seems that once your income is above median, the trustee’s office presumes that you are not entitled to a Chapter 7. You will have to be ready to prove all the information that you put in the means test. You may be asked for several months of bank statements. You may be asked about the income of any children or other individuals in your household. The reasonableness of the expenses you claim may be challenged. By the time the trustee is finished with this process, you may decide to convert your Chapter 7 to a Chapter 13; and if you don’t you may neverthless wish you had started with a 13 in the first place.

While there are mathematical formulas involved, it remains more of an art than a science. The trustee’s office looks at the numbers but also at the totality of the circumstances in deciding how much trouble if any to give you. You need to get a competent lawyer and stay close to that person as you go through the process.

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

January 13, 2014January 13, 2014

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.

October 22, 2013October 22, 2013

Driven to Bankruptcy by Health Insurance Costs?

Here’s a first that may not be the last. Received a call from a gentleman who says that because of the new health insurance law, he has to sign up for health insurance which will start in January. The substantial per month cost will make it impossible for him to keep up with payments on his credit cards, and he wants to file for Chapter 7 bankruptcy.

This is the first call like this that I have received, but I expect that it won’t be the last. Of course I’m sure it can be said that he needed the health insurance anyway, and sooner or later he may have been driven to bankruptcy by the medical bills resulting from being uninsured.

October 16, 2013October 16, 2013

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.

October 1, 2013October 1, 2013

Bankruptcy Court Says They’ll Stay Open for Ten Business Days

Minneapolis Federal Courthouse, where Hennpin County Bankruptcy cases are filed

Late yesterday I received the following email from the clerk of bankruptcy court in Minneapolis:

“In the event of a government shutdown on October 1, 2013, the United States Bankruptcy Court for the District of Minnesota will be open and will maintain normal hours and operations for approximately 10 business days. All proceedings and deadlines remain in effect as scheduled and CM/ECF will be available for the electronic filing and review of documents.”

This somewhat surprised me because last week I received the following email from the clerk of federal court’s office in Minneapolis:

"JUDICIARY TO REMAIN OPEN IF GOVERNMENT SHUTS DOWN

In the event there is a government shutdown beginning October 1, 2013, the United States District Court for the District of Minnesota will continue normal operations Tuesday, October 1, 2013. All cases, including civil and criminal jury trials, will be processed and argued and judgments will be issued and enforced according to usual schedules and priorities. The Clerk’s Office will be fully operational and CM/ECF will continue to be fully functional.” (CM/ECF means Case Management/Electronic Case Files.)

I always thought of the bankruptcy court as being a branch of the federal judiciary, and the earlier of the two emails seemed to be saying that the federal judiciary would not be shut down at all. Guess I misunderstood that. Apparently if the government shutdown continues for more than two weeks, we can expect the bankruptcy court to close.

Either way the news for now is that the Minnesota bankruptcy court is open for business as usual. Filings are being accepted and nothing is being postponed or rescheduled. I expect that this is at least in part because there are very stiff filing fees in bankruptcy court. Right now the filing fee for a Chapter 7 is $306 and the filing fee for a Chapter 13 is $281. Late last week I was charged $30 to file an amended document with the court. I imagine that at any one time there are enough of these fees in the pipeline to keep the place going for a while.

Nevertheless, I invite all my clients to keep an eye out for emails and phone messages from me concerning possible delay or rescheduling of creditor meetings or other events. The word for today is UNCERTAINTY.

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.