Top Seven TO DO’s Before Bankruptcy: Item 2 – Get Your Credit Reports

Credit report obtained by lawyer

By David J. Kelly, Minnesota Bankruptcy Attorney

This is the second in a series of seven blog posts about my top seven things that you should do if you are preparing to file a bankruptcy. This also applies even if you are just considering filing a bankruptcy – either Chapter 7 or Chapter 13. What I want to talk about it getting your credit reports. I wouldn’t dare want to file somebody’s bankruptcy without reviewing at least one credit report. There are three major reporting agencies which each produce their own reports – Experian, Equifax and Trans Union. Usually all three reports are about the same, but not always.

Easiest way: Authorize Your Lawyer Get Your Credit Reports

While you can get your reports on your own, your best choice is to have your lawyer get them for you. For $37 per person I can get a report that pulls information from all three credit reporting bureaus. We will have to provide your email address and social security number. After that we will have to answer three questions to which only you would have the answers. Then I can download your comprehensive credit report info directly into my bankruptcy software. And I will print a copy of the report for you. As a bonus it provides your credit score along with a prediction of what filing bankruptcy will do to your credit score. Somewhat surprisingly, the prediction is usually for an improvement in the score.

The Hard Way: Get the Reports Yourself

If you want to get the reports on your own, the best place to go and the only place I recommend is https://annualcreditreport.com​. There is a federal law that requires the three major reporting agencies to make a report available to each individual once a year. This site was created by the agencies to satisfy this requirement. Unlike the other resources I am aware of, this web site is really free. All the other sites will want you to subscribe or sign up for something. The one exception at annualcreditreport.com is if you ask for your credit score. Don’t do that. It looks like they want to get something in exchange for that, and I don’t need the credit score. I just want to know who the creditors are.

It helps me if you can download each report as a pdf document and then print it on paper as well. If you don’t have a printer, send me the pdf and I’ll print it. There is often a problem in printing these reports where the printer cuts off the top, bottom or side of the pages. If that happens the report is often missing so much that it is not useable. Problems like this can be avoided of course if you just have me get the reports instead.

The Bankruptcy Must List All Your Debts

I can’t emphasize enough how important it is that we list all your debts. Failure to list a debt could result in that debt not being discharged. Unlisted debts aren’t discharged in Chapter 7 cases where there are assets for the creditors. Unlisted debts are also not discharged in Chapter 13 cases. In those situations the creditor could have filed a claim and gotten their share of the payments or assets. But they can’t file a claim if they are never notified. So the discharge doesn’t apply to them.

Creditors can be added for a while after the case is filed, but it is obviously much better to get them all listed to begin with.

Sometimes certain debts don’t show on your credit reports. An example of this is medical bills. The medical people have a confidentiality requirement and don’t want to just tell the world that you owe them money. Typically medical bills don’t show up on credit reports unless they have been sent to a collection agency. In order to report to a credit bureau, the creditor has to have a membership in that bureau. Many small businesses do not have or can’t afford to have that, and debts owing to those businesses won’t be on the reports either. Please keep in mind that even if the debt doesn’t show on the reports, it is still your responsibility to make sure all your debts are listed in the case. You have to give this info to your lawyer. Your lawyer isn’t a psychic.

Disclaimer

This post is for general information purposes and is not legal advice. It does not create an attorney-client relationship. Small details in your case can make a big difference. Consult the attorney of your choice concerning the details of your case. I practice in Minnesota. Laws and practices may be a lot different in your state.

Call Dave – It’s Free

Call Dave for a free telephone consultation. 962-544-6356.

Top Seven TO DO’s Before Bankruptcy: Item 1 – Gather Your Financial Records

Taking Covid safety measures

By David J. Kelly, Minnesota Bankruptcy Attorney

This is the first in a series of seven posts about my top seven things that you should do if you are considering bankruptcy or preparing to file – either Chapter 7 or Chapter 13.

Item 1 on my list is that you should gather the financial records that your attorney will need to process your case. These will include payroll check stubs, bank statements, mortgage records, and tax returns. You should also be gathering together your monthly statements for all your debts. Include any nasty letters you may be receiving from lawyers or collection agencies. Don’t just gather the records you have, but also start keeping records of all your financial transactions. Keep track of your expenses. Keep all your receipts. If there is legal action against you, keep all the paperwork from that. There is a human tendency to want to throw away paperwork that contains bad news. Don’t do it. Keep it and give it to your lawyer.

Income Information

Your attorney will want to see at least six months of income information. Typically this would be pay stubs from any employment you have had during the most recent six months. He or she will also need to know about unemployment benefits, disability benefits, social security benefits, retirement income and any other income source for that six months. If you are self employed or operating a small business, create a cash in – cash out statement. This is a listing of funds received and business expenses paid over that the most recent six months. I prefer to it broken down by month. For a self employed person, “income” usually will be the difference between the cash in and the cash out.

Bank Statements

The trustee in your bankruptcy case will always ask to see at least 30 days of bank statements. Maybe they will ask to see as many as six months of bank statements. This would be a printout or statements for any bank accounts you may have. It always has to include the balance on the day the case is filed. If there are red flags in your bank statements, you want your lawyer to see them before somebody else does. Most of the time I start by asking to see my client’s most recent bank statement. Then I may ask for more depending on what I see.

Keep Your Receipts

If you do a lot of your financial business with cash, it is best to keep very careful records of what you are doing with the cash. Keep your receipts. Keep records for everything you do. You might or might not be asked to produce the receipts, but you should have them ready in case the trustee wants to see them.

Tax Returns

The bankruptcy trustee will require that you produce your most recent state and federal tax returns. I will want to see at least the last two years of your tax returns. There are income questions on the bankruptcy petition that go back two years. The best place for me to get your income information is from the tax returns. If you have unfiled tax returns, I will ask that you get your tax filing up to date before we file the bankruptcy. We have to list all your assets and all your debts. If you owe taxes that’s obviously a debt, and if you have a refund coming that’s an asset. Either way I need to know what that is.

Bills, Nasty Letters and Legal Actions

Even if we eventually get a credit report, there are many things that do not show on those reports. Or the reports might be wrong. So I want to see the statements and letters you have been receiving from your creditors. If there is a lawsuit or a threat of one, I want to see all the paperwork you have about that as well.

Documentation of Assets

If you own your home, find your deed from when you bought the place. Best too if you find a copy of the mortgage you signed at that time. If you have refinanced, find the papers about that too. Usually you get a big folder of stuff when you buy a house or refinance. Just bring that folder to your lawyer and he or she will pick out the needed documents. If you own a car, trailer, camper, or motorcycle, find the title certificates. If you have a boat or an ATV that is registered with the state, find your registration card or papers – your lawyer will need them.

Maintain ongoing records

Finally keep in mind that preparing a bankruptcy is an ongoing process. You are never realy done gathering records. As your attorney works with you to prepare the case, which could take several weeks, continue to keep records. When anything new turns up, be sure you give it to your lawyer.

Disclaimer

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

Call Dave – It’s Free

Call Dave for a free telephone consultation. 962-544-6356.

Things to Avoid Before Bankruptcy: Item 7 – Recent Debt Run-up

Credit Card Debt

By Dave Kelly, Minnesota bankruptcy attorney

This is the last in my series of articles about the top seven things that in my opinion you should avoid doing prior to filing a Chapter 7 or Chapter 13 bankruptcy. My list is not exclusive. There are lots of other things to be avoided. On one web page I saw a list of 33 things to avoid. All I am saying is that this list is my top seven. Others may disagree on my ranking of these.

Why is Debt Run-up Before Bankruptcy a Problem?

The reason you should avoid running up debt right before filing a bankruptcy is that doing so may result in an objection to your discharge from one of the creditors. Typically this would not be an objection to your entire bankruptcy case, but just an objection to the one particular debt owing to that particular creditor. The larger the debt and the closer to the filing date of the bankruptcy it was incurred, the greater the risk.

The creditor will review the account and use the history of the account to try and prove that you had no intent of paying the debt at the time you ran it up. If you had no intent to pay when you incurred the debt, the creditor can object on the grounds of false pretenses and fraud. The evidence that the creditor will use will usually be entirely circumstantial . Basically they put together their case and ask the judge “what’s this look like to you?” Often it can be pretty obvious, other times not.

Worse if for Luxury Good or Services

The creditor’s case is always stronger if the debt is for luxury goods and services, especially if the purchases spike right before the bankruptcy is filed. When somebody who hardly ever goes farther then Duluth suddenly decides they need a trip to Europe, it looks suspicious. Expensive restaurants, large purchases of alcohol, spas and pedicures don’t look so good either. On the opposite end of the spectrum is medical expense. People usually don’t have control of medical costs, and the medical providers almost never object.

What the Law Presumes

Ordinarily the creditor has the burden of proof when they file an objection to discharge. This means that the creditor has to prove their case and the debtor does not have to necessarily prove anything. The bankruptcy statute has two situations, however, where certain presumptions shift the burden of proof to the debtor. Here they are:

1.  Any consumer debt for goods and services owed to a single creditor in excess of $725 incurred within 90 days of filing is presumed to be for luxury items. With the proper evidence in your favor, the presumption can be rebutted; but it’s best just to wait so you don’t have to go through a potential objection from the creditor.

2.  Cash advances in excess of $1,000 made within 70 days of filing are presumed non-dischargeable. Again, if this has happened it may be best to wait until the time period has passed before filing.

What this Really Means

As a practical matter what does all this mean? In my opinion it means that you might not want to file a bankruptcy if you have run up a debt on any one account in an amount of more than 4 or5 thousand dollars in the past six months. If it’s much less than that, the creditor probably can’t afford to do an objection. If it’s much older than that, it’s might be too hard for the creditor to prove. This kind of recent debt runup doesn’t necessarily mean you should not file a bankruptcy. But it could be a good reason to delay the filing for a while.

Disclaimer

This post is for general information purposes only and is not legal advice. It does not create an attorney-client relationship. Consult the attorney or your choice about the details of your case.

 

Filing Chapter 7 Easier After November 1st: MN Median Incomes Rise Despite Covid-19

Higher Median Income for MN

By David Kelly, Minnesota Bankruptcy Lawyer

Why Your Median Income is Important if you are Thinking of Bankruptcy

If your income is below the median for your household size in your state, you can file a Chapter 7 bankruptcy without having to take and pass the means test. I expected that with the Covid epidemic in progress the income numbers would be dropping substantially. At least for the state of Minnesota, this is not what has just happened. They actually went up. Quite a bit up in fact, as of November 1st 2020. This means that many people who may not have been able to file a Chapter 7 bankruptcy earlier will be able to do so now.

Twice a year the Department of Justice updates it’s official median income tables. Numbers are assigned on a state by state and a household size basis, supposedly based on figures from the Census Bureau. A new set of numbers is out for November 1, 2020. The numbers went up at a rate higher than usual. This is a happy surprise.

Are These Numbers For Real?

I can’t help but wonder if somebody is messing with the numbers. Frankly, they don’t look right to me based on what I have been seeing. But I should not be looking a gift horse in the mouth. This helps my clients. It will be a lot easier to file a Chapter 7 bankruptcy in Minnesota after November 1, 2020 than it was before. Another benefit is that if for some reason you need to file a Chapter 13 bankruptcy, having an income below median means that your payment plan can run only three years instead of the usual five years.

Here are the Minnesota median income numbers effective November 1, 2020:

One person:$  61,811 – an increase of $3,761 since April 2020
Two people:$ 81,478 – an increase of $3,776 since April 2020
Three people:$100,430 – an increase of $2,773 since April of 2020
Four people:$118,646 – an increase of $4,320 since April of 2020
Five people$127,646 – an increase of $4,320 since April of 2020
Six people: $136,646 – an increase of $4,320 since April of 2020
Add $9,000 for each individual in excess of 6

Call 952-544-6356 to Find Out How This Helps You

When it comes to eligibility for filing Chapter 7 bankruptcy, or for Chapter 13 if that’s what you need, things are looking up. Now is a good time to contact me for a free telephone consultation to discuss how this helps you.

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


Things to Avoid Before Bankruptcy: Item 4 – Drawing Down Your 401K

Things to Avoid Before Bankruptcy Item 4

By David J. Kelly, Minnesota Bankruptcy Attorney

As I’ve been saying, I have a list of what I consider the top seven things you should avoid before filing a bankruptcy, either Chapter 7 or Chapter 13. This is the fourth in a series and is about item four on my list – drawing down your 401K. Items One, Two and Three on my list are discussed in previous blog posts.

In general, money in a 401K is safe from your creditors and safe from the bankruptcy trustee. This is ordinarily also true for IRA accounts as well. Some exceptions have developed recently for accounts that are being transferred as part of a divorce and for accounts that have been inherited – but these are fairly rare problems. Usually a 401K or an IRA is the safest place your money can be. I am very sad when right before coming to see me, somebody cleans out their retirement account.

Most often I see they money used in an attempt to pay down debts. It is almost never enough. Soon the money is gone, and because of finance charges and high interest rates, not much of a dent has been made in the debt load. Other times people withdraw the money because they are afraid creditors will get it – which is sad because with the possible exception of the IRS or the child support people, creditors can’t touch it.

As a general rule, if you are deeply in debt, you should talk with a lawyer before making any serious financial changes.

I am a debt relief agency. I help people file for relief under the federal bankruptcy code. This video does not create an attorney-client relationship and is not legal advice. It is for general information purposes only. The details of your case can make a big difference as to whether or how the contents of this video apply to you.

Dave Kelly

Things to Avoid Before Bankruptcy: Item 3 – Large Payments to Unsecured Creditors

By David J. Kelly, Minnesota Bankruptcy Lawyer

If you’ve been reading my stuff, you know that I have a list of what I consider the top seven things you should avoid before filing a bankruptcy, either Chapter 7 or Chapter 13. This is the third in a series and is about item three on my list – making large payments to unsecured creditors.

The bankruptcy code follows the general principal that all your creditors are supposed to be treated equally – damaged equally in proportion to the amount of each debt.  To try and level the playing field among the unsecured creditors, a limit is set on how much you can pay each one within the 90 days before the filing of your case. If you have paid a total of over $600 to any one unsecured creditor in the 90 days prior to filing the case, this is considered what they call a “preference.”  Having a preference can slow down the administration of your case, not to mention that making those payments is a waste of your money.  Save the money to pay your attorney fee and court filing fee.

A preference is considered to be one of your assets, but it’s not one you can claim as exempt. In a Chapter 7 bankruptcy case having a preference means that the trustee can claw the money back from the one creditor and distribute it equally to all the creditors. While this process is going on, your court file remains open and you are not able to start rebuilding your credit. In a Chapter 13 bankruptcy it means you may have to pay extra in your payment plan to make up for what the creditors would have received had it been a Chapter 7. In Chapter 13 they call that the best interests of the creditor rule. You can’t give the unsecured creditors less in a Chapter 13 than they would have received in a Chapter 7. Either way, whether it’s Chapter 7 or Chapter 13, the result is undesirable.

Once a case is filed, my goal is always to get out of the case as quickly as possible. So a preference is usually something I want to avoid. They way to avoid the issue to quit paying the unsecured creditors and wait until you have a 90 day period free of preferences. There are always exceptions. The preference might not be the worst thing in the world. For example, if there is a wage garnishment in progress I might say let’s get the case filed ASAP anyway.

When asked my clients almost always say that they have not paid over $600 to any unsecured creditor in the last 90 days. But then I point out that all you have to be doing is paying over $200 per month, and that will always add up to over $600 in 90 days. At that point a light bulb seems to come on and I learn that there is a preference hiding there somewhere.

Keep an eye out for the next episode – Item Four – Drawing Down your 401K.

Things to Avoid Before Bankruptcy: Item 2 – Transferring Assets to a Close Friend or Relative

Things to avoid before bankruptcy

By David J. Kelly, Minnesota Bankruptcy Attorney

This is the second in my series on things to avoid doing before filing a bankruptcy, either Chapter 7 or Chapter 13.

Outright transfers of assets and large gifts are things to be avoided prior to filing any kind of bankruptcy.  An example might be transferring a car or a motorcycle to one of your children, or giving someone a large amount of money or a very expensive gift for their wedding.  Putting relatively large sums of money in a bank account for a child could be another example.  The bankruptcy trustee in a Chapter 7 case may look at transfers like this as an effort to hide assets.  It can be considered bankruptcy fraud and be very detrimental to the case.  The look back on this under the bankruptcy code is two years, but under Minnesota state law it can go back as far as six years.

529 plans have their own special rules about how much a bankruptcy trustee can claw back. 529 plans are educational savings plans that people set up for their child. They have tax advantages similar to a 401K or IRA. But the bankruptcy trustee in a Chapter 7 can claim anything deposited within a year before the case is filed, and there are limits on how much can be protected for the amounts deposited in the two years before that.

A transfer that can be clawed back in a Chapter 7 case will not be clawed back in a Chapter 13, but the Chapter 13 plan payments will have to be high enough so that the unsecured creditors get at least as much as they would have received had it been a Chapter 7. In other words, your plan payment will probably have to be increased to make up for the fact that the asset is there.

One thing I see people often doing is having their pay check deposited into somebody else’s bank account. Perhaps this is to avoid a creditor who has already cleaned out the debtor’s own bank account. You might or might not have a serious problem with your bankruptcy case if this has been going on, depending on all the circumstances. Best policy is to just to not do it.

I can’t tell you how many times I’ve been told “well I’ll just sell that (boat or motorcycle or whatever) to my brother for a dollar.” That won’t work. Rest assured that this loophole was plugged a very long time ago. That’s not exactly an original idea. When you sell something to someone right before filing a bankruptcy, who you sold it to and for how much has to be disclosed. Your relationship if any with the purchaser also has to be disclosed.

There are various exceptions – loopholes if you prefer – to most of the items I have been talking about here. You need to talk with your lawyer about whether what you did in your circumstances is going to be a problem or not. If you are contemplating bankruptcy, talk with your lawyer before making any significant financial movers. I hate having to say “gosh I wish you had talked with me before doing that.”

Things to Avoid Before Bankruptcy: Item 1 – Repaying a Debt to a Close Friend or Relative

Protect your friends and relatives

By David J. Kelly, Minnesota Bankruptcy Lawyer

It has always seemed to me that most of the things you SHOULD NOT do before filing bankruptcy are things that in ordinary circumstances your mother would say that you SHOULD do. If you are thinking of filing a bankruptcy, it’s time to consult your lawyer and not your mother or friends or relatives.  The sooner you consult a lawyer the better.  The bankruptcy code is full of hidden traps and gotchas. 

This is the first in a series of seven blog posts about things to NOT do if you are considering filing a bankruptcy in Minnesota. This post discusses payment of a debt to an insider – usually that means a close friend or relative. It can also include a business partner or associate.

In a Chapter 7 bankruptcy amounts repaid within a year before the bankruptcy is filed on debt owing to an insider can be clawed back by the trustee. In Chapter 13 bankruptcy you have to pay extra money into your plan to cover what the trustee could have clawed back had it been a Chapter 7. Either way, this is something you want to avoid. There is a fix for the problem, but you might not like it: obtaining another loan from the person you repaid in an amount in excess of the amount you paid.

The last thing you want after your bankruptcy case is filed is for your mother or brother to receive a letter from the trustee demanding return of money you paid them.  You get the same result if you pay a debt owing to an insider by giving the insider a benefit indirectly.  Here’s a common example of how this can happen.  Let’s say you need to buy a car but you can’t get a loan to do so.  Your brother does a cash advance on his credit card and loans you the money to buy the car. Every month you make a payment on the credit card that is in your brother’s name.  In a Chapter 7 bankruptcy the trustee can go after your  brother to recover all the payments you made on that credit card within the year before filing.  In a Chapter 13 you may have to pay larger payments to cover for the amount you repaid in your brother’s name.

I always hate it when I learn that my client or potential client has just done something that is really going to make the case difficult.  The rule seems to be that they always do it just a few days before coming in to see me.  If only they had talked with me before doing that!

If this sounds complicated it is. If you are thinking of bankruptcy it is best if you consult a lawyer before you make any financial moves. I would be glad to discuss the details of your case. Call me at 952-544-6356.

Bankruptcy Attorneys Provide an Essential Service

By David J. Kelly, Minnesota Bankruptcy Lawyer


Bankruptcy attorneys are considered to be an essential service. While I have been taking plenty of precautions, such as asking everyone to wear a mask, I am still here and ready to serve. It usually takes several meetings between myself and my clients to properly prepare a case for filing – but many of those meetings can be done by Zoom or telephone or one of the other remote communication platforms. You don’t have to wait. I would be glad to start working with you now. To begin, call me for a free telephone consultation. 952-544-6356.

Don’t Delay Filing Your Tax Returns

By David J. Kelly, Minnesota Bankruptcy Attorney

I have not been keeping track but it seems to me that somewhere around 20% of the people who call me are behind in filing their tax returns.  I’m not talking about filing for an extension first and then filing the return by the extended deadline.  I’m talking about not filing anything at all. The usual reason for not filing a required return is that the tax return showed that they owed taxes and they lacked the money to pay the taxes.  I do not claim to be a tax expert, but I can tell you that it is almost always better to file your tax returns on time even if you don’t have the money to pay the tax. If you don’t file the return, you still owe the tax.  Not filing doesn’t make the tax debt go away.  It just delays the inevitable and possibly gets you in trouble. There can be late filing penalties as well as late payment penalties.  Filing on time at least avoids the late filing penalties.

I have learned that it is a really bad idea to file any kind of a bankruptcy if my client’s tax filings are not up to date first.  In a bankruptcy petition we are required to provide a summary of income for three calendar years. I usually just take that information off my client’s tax returns.  We are required to list all your debts and all your assets.  If you have a refund coming, that’s an asset.  If you owe taxes, that’s a debt.  It is nearly impossible to properly list your debts and assets without having all required tax returns completed and filed first.  Without the tax returns the basic information required about assets and debts is incomplete.

It is usually fairly easy to set up payment plans for back taxes owed with the IRS and the Minnesota Department of Revenue.  Just pick up the phone and call them.  You will probably find them very easy to work with.  And if we are having trouble showing that you are broke enough to qualify for a Chapter 7 bankruptcy, the payment plans with the IRS and the Department of Revenue make very handy items to add to your monthly budget.  To qualify for Chapter 7 it is best if your money is all gone by the end of the month.  If you have a little left over at the end of the month, you probably  won’t after you set up your payment plans.