The Minnesota bankruptcy filing statistics are out for the month of March. Year over year, March of 2019 shows 70 fewer bankruptcy filings than there were in March of 2018. In March of 2018 there were 998 bankruptcy cases filed in Minnesota, but this year in March 2019 it was only 928. March has always been the month in which the greatest number of case are filed – in my opinion that’s because people have tax refund money they can use to pay their lawyers. Why is it down this year? My best guess is it”s those lower tax refunds everyone has been talking about. I see my clients having bigger pay checks because their withholding is less, but they are also having lower tax refunds. Since tax refunds are considered to be an asset, a lower refund can be a good thing once the bankruptcy case is filed.
If you’ve been reading any of my musings, you know that when you file a Chapter 7 bankruptcy, ownership of all your stuff is temporarily and theoretically transferred to a trustee appointed by the court. I say “theoretically” because normally the trustee doesn’t get to keep any of it, or at least gets to keep very little. The reason why the trustee can’t keep your assets is that – with the help of somebody like me – you are going to claim all or most of your stuff as exempt. There are two sets of exemptions in Minnesota to choose from: the federal exemptions and the Minnesota state exemptions. The federal exemptions tend to be much better than the Minnesota state exemptions, except in one area: equity in a homestead. If you own your home and you have more than just a little equity in your home, the Minnesota state exemptions are for you.
Several of the Minnesota exemptions are indexed for inflation. The resulting increases are only applied every few years. 2018 was one of those years. The new indexed numbers went into effect on July 1st. For example: the household goods exemption increased from $10,300 to $10,800; for wedding rings the exemption increased from $2,817.50 to $2,940 in value; for life insurance proceeds it increased from $46,000 to $48,000; and the tools of the trade exemption went from $11,500 to $12,000. The most significant increase in my opinion was the homestead exemption which went from $390,000 of equity to $420,000 of equity.
For more info about exempting your property so the bankruptcy trustee can’t have it, look at my exemption page. For a rant about what’s wrong with the Minnesota state exemptions, please take a look at my post Minnesota State Exemptions Still Leaking Like a Sieve. You might also want to take a look at this video:
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.
I’m not a paperless kind of guy. Hard copies of everything in a file folder. That’s how I like to do things. This of course means that I generate a lot of paper, and every few years I run out of storage space. After a Chapter 13 or Chapter 7 case is completed, the discharge has been granted and the clerk’s office has closed the case, I move the file to a storage room in the back of my garage. To me those files represent a lot of work, care, concern, blood and sweat. Gosh I hate to get rid of them. But a time comes when one has to let go. One has to admit that those people really did get a fresh start, they don’t need me any more, and it’s really time to move on and let go – physically let go of the file.
So it was with mixed feelings recently that I called Proshred, a locally owned shredding company near me. Prior to their arrival on the appointed day, I spent probably at least 20 hours going through all my old files deciding what it was safe to shred and what I had better still keep. I don’t remember for sure when I did this last, but I noticed right away that for the most part the oldest files I had dated from about 2006. What I finally wound up with was a big pile of bankruptcy files ranging from about 2006 to about 2012 in the middle of my garage floor. There was no left room to park.
When the truck arrived as one would expect, the driver who was supposed to do all the loading work had just had back surgery. He showed me the scar. I was planning on helping him anyway, but it turned out to be more like he was helping me. The files were moved from my garage to the truck using a full sized 64 gallon garbage can on wheels. It took about eight trips. I suppose that means I had about 512 gallons of files. Never thought of measuring my work by the gallon before.
I could hear the shredding blades doing their work right there at the end of my driveway. Kind of a strange or odd end to all that concern and pain I thought. It was comforting to hear from the driver that the remains of the files were going to be recycled and would eventually be used to make new paper at a mill somewhere near Duluth. As the truck pulled away I felt a bit of sadness, followed by a feeling of lightness and relief.
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.
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.
I recently noticed a familiar name and face in an article in the Star Tribune. The headline was “Minneapolis Bankruptcy Trustee Smelled a Rat and Got the Goods on Jewelry Store Owner,” an article by reporter Randy Furst. The article describes a situation where a gentleman, Daniel Rohricht, apparently closed his jewelry store, went out of business and filed Chapter 7 bankruptcy. This was about four years ago. The debts listed in the bankruptcy came to over $250,000.
Mr. Rohricht claimed that all the jewelry was gone, having all been sold. The bankruptcy seemed to go well. One of our local bankruptcy trustees, a lawyer named Nauni Manty, was appointed as the trustee handling the case. Ms. Manty knows a lot about jewelry and the jewelry business, but there was no evidence that anything was being hidden. It is the trustee’s job to find assets for the creditors. But after doing what investigation she could, she accepted a settlement of $17,500 from Mr. Rohricht. The settlement agreement stated, however, that if Ms. Manty became aware of any undisclosed assets, the deal was off and they were back to square one.
Years passed, but Ms. Manty did not forget Mr. Rohricht. Eventually she got wind that he had purchased a store in Wisconsin and had gone back into business. She was able to prove that the jewelry and precious stones that he was hauling into the new store were items he had hidden in 2009 prior to filing his bankruptcy. To make a long story short, he recently pled guilty to concealing assets and is now facing federal prison and a very large fine.
It’s not unusual that I will run into a person who has something he or she doesn’t want to disclose in their bankruptcy case. They tend to believe firmly that it is something nobody would ever find out about. That’s what Mr. Rohricht thought too. I get asked why whatever it is must be disclosed. Here’s why. My understanding is that every year in Minnesota on average two or three people are convicted of bankruptcy fraud. It’s never happened to any client of mine, and I really want to keep it that way.
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, helping people file for relief under the federal bankruptcy code.
During the holidays several of my clients received their bankruptcy discharge. The discharge is a court order which states that the Debtor is no longer legally obligated to repay most if not all of his or her debts. In most cases the only debts that are not discharged are student loans and taxes. Sometimes even taxes can be discharged, but that’s a topic for another blog post.
When that discharge comes out, many of my clients thank me profusely. For some reason I often have a hard time accepting thanks. When I was growing up I think it was part of the culture to assume that when somebody was just doing their job, there was no need to thank them. And if somebody thanked me I tended to say “no need to thank me” or “it was nothing” or other similar words which more or less blew it off. Later in life I learned that such responses diminish the importance of the gratitude being expressed and the person expressing it, and a simple “you’re welcome” is a much better way to respond.
Gratitude is one of the most noble of feelings and it should always be acknowledged – still it remains hard for me to do. Even so, with the client’s permission I’d like to share with you the following somewhat poetic excerpt from an email I received from one of the clients who recently got that discharge:
“This is the best holiday present ever!
That difficult experience of the past few years can now finally be a ghost….So many sleepless nights.
Thank you David for helping us to straighten out our lives..
We still have a hard road a head to try to prepare for being too old to be employed…
It would have been impossible with the mess we were in and it is still a long shot but we do have better odds now.
You were our guiding light and we will always be grateful.
Many many thanks to you David, …….”
I tend to get a little emotional around the holidays anyway, but this email really touched me.
A lot of the advertising about attorney fees for bankruptcy is misleading – even tricky. Today I checked on a Google ad and the web page it leads to which says a certain law firm will file a bankruptcy after a payment toward the attorney fee of only $99. I found this to be not exactly accurate.
The web page says that $99 toward the attorney fee, along with the court filing fee and counseling program fees, would be all one would have to pay prior to filing. It was a slick web page, obviously done at considerable expense, where I found the following statement:
“You only have to pay the court filing fee of $335 and the credit report / credit course fees of $65 and an attorney fee of $99 to file.” It also said: “Only $99 Down, No Co-Signer Needed, File Now/Pay over Time, Affordable Payment Plans” in big blue letters.
I wondered how can these people can be doing this. I could never cover my office rent, malpractice insurance, phone and internet bills and office supplies if I didn’t charge a lot more than that. So I went to the bankruptcy court web site and ran a search for actual cases they had filed. This is not free, so I didn’t look very far. All I did was check the last two cases this law firm filed to see what the attorney fee had been. Attorney fees have to be disclosed on the bankruptcy petition. What I found was that for the last two cases they filed, both Chapter 7s, their fee was $990. And the court filings also said they had received all of the $990 before filing the case. That’s lower than what I would usually charge, but it’s a lot more than $99.
Now one thing you should understand about attorney fees in a Chapter 7 bankruptcy is this. If the attorney does not collect his or her fee prior to filing, any part of the fee that is still owing is just another debt in the bankruptcy case. The attorney is just another creditor. The attorney, like all the other creditors, is under an immediate court order requiring that he or she do nothing to try to collect. It is illegal and unethical for the attorney to collect anything from the client once the case is filed. That’s why you may see references to a co-signer in some advertising. The lawyer can still try to collect the fee from a co-signer as long as the co-signer is not his bankruptcy client. This of course puts the bankruptcy lawyer in the position of being a bill collector. I don’t EVER want to be a bill collector.
I went back to the web page thinking it must be referring to Chapter 13 bankruptcy only. When it comes to paying attorney fees after the case is filed, a Chapter 13 bankruptcy is a very different animal from a Chapter 7. If you file a Chapter 13 bankruptcy it is possible to pay part of the attorney fee through the Chapter 13 payment plan. I hit Control F to search the page and typed “13” into the search box. No mention of “13” or “Chapter 13” appears anywhere on the page. The page seems to be talking about Chapter 7. The only filing fee the page mentions is $335, which is the Chapter 7 court filing fee. The court filing fee for a Chapter 13 is slightly lower.
When I look at their web page I can see that it is very slick, and at the bottom is the name of a web development company that designed the page. I can remember a few years back when I hired a person to redesign my page. The person I hired started adding all sorts of new key words and content, which was submitted to me for review. There was a whole lot of it, and it was hard to keep up with what the designer was doing. Is it possible that the web designer wrote up this stuff while the law firm was not paying attention? It could happen. I’m now back to doing all my own web design work. I found that having my web page in the hands of a professional design and marketing person was scary.
So maybe they just have a busy marketing person who they can’t keep up with. Maybe it’s not entirely the law firm’s fault. But I do want to suggest to you that you should be very wary when you see something like this and don’t be taken in by it. If it seems to good to be true, it probably is.
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
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.