Things to Avoid Before Bankruptcy: Item 5 – Getting Married

Things to Avoid Before Bankruptcy: Item 5

By David J. Kelly, Minnesota Bankruptcy Attorney

Eligibility for bankruptcy is based primarily on household income. How that is calculated might surprise you.

If you are contemplating bankruptcy and marriage, in most situations it would be best to do the bankruptcy first. Get things cleaned up before you start your new life. If you wait until after you are married, almost all your spouse’s income will be added to yours for purposes of determining eligibility for bankruptcy.  This will happen even if your spouse does not file bankruptcy jointly with you.

If you file your bankruptcy while you are still single, however, the only income that will count is yours. For bankruptcy purposes what is thought of as your income might be more than you would expect. Included in your income will be any contributions to your living expenses you regularly receive from others.

What others you might ask? Well, a good example would be a roommate or roommates with whom you share expenses. If your roommate is paying half the rent where you live, that half of the rent will be or will probably be considered additional income of yours. But then you get to claim a larger household size and the expenses of a larger household, which means it tends to all balance out. You will not have all your roommate’s income added to yours, but only your roommate’s contribution to your living expenses.

Contributions to your living expenses can come from all sorts of different sources: your adult children, your parent, your significant other, or some friend or relative. If the person making the contribution lives with you, as I mentioned above, you could typically include that person in your household size.

BUT if you have a spouse in your home, almost all that person’s income will be treated as yours – even if you file your bankruptcy individually. In many cases this can put a serious damper on your eligibility.

Every case is different and there are certainly exceptions to what I am saying here. If both you and your partner are in need of a bankruptcy, there is a possibility that you would be better off getting married and then doing one joint bankruptcy instead of two individual bankruptcy cases while you are single. This can be very tricky. If you and your partner both need to file bankruptcy, before getting married have your lawyer run the numbers both ways and follow the advice you receive.  

One more word. Getting married or getting divorced solely for the purpose of getting a better deal from the bankruptcy court could be considered bankruptcy fraud, and that could be a felony. Don’t even think about it. The bankruptcy statute contains a good faith requirement. Don’t be getting married or divorced unless that is something that you needed to do for non-bankruptcy purposes.

I am a debt relief agency. I help people file for relief under the federal bankruptcy code. This 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 practice in Minnesota. Rules, laws and practices may be different in your state.

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.

Best Way to Pay for a Bankruptcy is a Tax Refund

By David J. Kelly, Minnesota Bankruptcy Attorney

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.

Recent Increases for the Minnesota State Exemptions

Protecting your home and your stuff

By David J. Kelly, Minnesota Bankruptcy Attorney

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:

Minnesota State Exemptions Still Leaking Assets Like a Sieve

At least this old radio is exempt

By David J. Kelly, Minnesota Bankruptcy Attorney

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

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

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

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

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

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

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

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

 

Nothing is More Expensive Than A Cheap Bankruptcy Lawyer

Cheap isn't worth it.

By David J. Kelly, Minnesota Bankruptcy Lawyer since 1976

Recently I had a bankruptcy case where a seemingly small and innocent circumstance turned up after the case was filed. It seemed normal to my client at the time and certainly not dishonest in any way.  It wasn’t illegal, immoral or fattening.  It just happened, however, to be one of those things which can run afoul of some of the more nonsensical provisions of the bankruptcy code.

I could have just said well that’s too bad and let things land wherever.  Fixing the situation was probably beyond the scope of what I had signed on for in my retainer agreement.  Many of the larger law firms, particularly the mills that crank out large volumes of cases for cheap, would have just let it go.  Lawyers don’t promise that everything will be perfect; we don’t promise that nothing will go wrong.  Sometimes it’s just too bad, isn’t it?

But that kind of approach is just not how I do things.  I really care about the outcome of my work and I really care about my clients. I just could not let it go.  It would, and actually did, keep me awake at night. I started asking my client more questions, started asking for more documentation, more history.  I explained that there was a problem, but I was aware of two or three exceptions, loopholes if you like, and I was determined to find one that fit.

I found what I was looking for and put it together for presentation to the bankruptcy trustee.  When I was finished, the trustee agreed with me that the issue was settled in my client’s favor and the case should proceed in the usual boring way.

On a forum at AVVO.com, Las Vegas bankruptcy attorney Dorothy Bunce said it best in answer to a question about how to find a cheap bankruptcy lawyer:

“If you have $70,000 in debt, why do you care ‘how much does it cost?’ Talk about being penny wise and pound foolish. Whatever the bankruptcy attorney charges, if the attorney takes care of you and eliminates as many of your debts as legally possible, protects your assets, and answers your questions, price is immaterial. When “how much” is someone’s first question to me, I get rid of them as soon as I can because they are telling me they don’t value what I do and will have to learn the hard way that NOTHING IS MORE EXPENSIVE THAN A CHEAP LAWYER.” Quoted with Ms. Bunce’s permission.

That sure as heck says it all.

This response is for general 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.

The Minnesota Bankruptcy Responsibility Forms

Debt Relief, MN Bankruptcy

In fall of 2010 the bankruptcy judges in the Minnesota were getting upset. Their phones were ringing with calls from people who had questions that should have been answered by their lawyers; but these people were complaining that their lawyers would not return the calls.

At about the same time the judges started hearing complaints from the trustees about lawyers not showing up for the hearings (meeting of creditors). It didn’t take long for them to figure out that there were a large number of new lawyers on the scene who didn’t know what they were doing. Just out of law school, they were trying to pay their student loans by jumping into what was at that time a booming bankruptcy market. Worse than that, however, many of these lawyers had been hired by fly by night petition preparation mills who were asking them to just sign off on bankruptcy petitions which had been prepared in India or who knows where. So although there was a lawyer’s name on the bankruptcy case, it had actually been prepared by an automated service. This resulted in many cases being filed on behalf of clients who had never actually talked with or met the person who supposedly was their lawyer.

Lots of things were going wrong with these cases. This made it harder for everyone in the system. In an effort to remedy the situation, our judges created and began to require the use of the following “responsibility forms.” Although I was embarrassed for my profession – that it had come to this – when they first came out, I can now see that they have some value. I reproduce them here. Please note that the form for Chapter 7 is slightly different than the one for Chapter 13. Now that it’s been over six years since all that happened, it may be old news; but both the lawyer and the client are still required to sign these forms at the time a case is filed.

By the way, usually when I discuss these forms with my clients, I refer to them as “the dummy checklist.”  If it weren’t for some real dummies, we would not need them.

NOTICE OF RESPONSIBILITIES OF
CHAPTER 7 DEBTORS AND THEIR ATTORNEYS
This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s fees are paid;

D. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

E. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

F. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

G. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 7 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Promptly respond to the debtor’s questions throughout the case;

D. Consider and advise the debtor concerning the debtor’s options to buy, sell or refinance real or personal property and assume or reject executory contracts or unexpired leases;

E. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

F. Fully advise the debtor of the legal effect and consequences of proposed reaffirmation agreements and any defaults thereunder and, where appropriate, negotiate alternate terms with secured creditors, ensure that any agreement is fully and properly completed and filed and appear at any hearing, if required;

G. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;

H. Prepare, file, and serve responses to motions for dismissal of the case;

I. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

J. Represent the debtor in connection with any audit request; and

K. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 7 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney;

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment;

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 7 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 7 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement until the debtor receives a discharge;

D. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number; and

E. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing.

VI. The chapter 7 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 7 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.

A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

NOTICE OF RESPONSIBILITIES OF
CHAPTER 13 DEBTORS AND THEIR ATTORNEYS

This Notice lists certain responsibilities of debtors and their attorneys. Nothing in this document changes, limits, or in any way alters the debtor’s or the debtor’s attorney’s obligations under the Bankruptcy Code, the local and national rules, or any rule of professional responsibility.

UNLESS THE COURT ORDERS OTHERWISE:

I. Before the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Meet with the debtor to review and analyze the debtor’s real and personal property, debts, income, and expenses and advise the debtor on whether to file a bankruptcy petition;

B. Explain the various bankruptcy and non-bankruptcy options, the consequences of filing under chapters 7, 11 or 13 and answer the debtor’s questions;

C. Explain to the debtor how the attorney’s and trustee’s fees are paid;

D. Explain what payments will be made directly by the debtor and what payments will be made through the debtor’s chapter 13 plan, with particular attention to mortgage and vehicle loan payments, as well as any other claims with accrued interest;

E. Explain to the debtor how, when, and where to make the chapter 13 plan payments;

F. Explain to the debtor that the first plan payment must be made to the trustee within 30 days of filing the case;
G. Advise the debtor of the requirement to provide to the trustee the most recently filed tax return(s) at least seven days prior to the scheduled meeting of creditors. In addition, advise the debtor of the requirement to attend the meeting of creditors and identify the documents the debtor must bring to the meeting;

H. Advise the debtor that providing false information in the bankruptcy schedules or false testimony at the meeting of creditors or other hearing or trial may expose the debtor to criminal prosecution and denial of discharge;

I. Advise the debtor of the necessity of maintaining liability, collision, and comprehensive insurance on vehicles securing loans or leases;

J. Timely prepare and file the debtor’s petition, plan, schedules, statements, certificates, and other documents required to commence a case, and review them for accuracy contemporaneously with the filing.

II. After the case is filed, the attorney for the chapter 13 debtor shall, at a minimum:

A. Ensure that the debtor is adequately represented by an attorney at the meeting of creditors and make every effort to obtain confirmation of the plan;

B. Prepare, file, and serve any necessary amendments to the petition, schedules, and statements;

C. Respond to any objection to plan confirmation and, where necessary, prepare, file, and serve a modified plan, and appear, as required, at any hearing;

D. Prepare, file, and serve post-confirmation documents necessary to modify the plan;*

E. Promptly respond to the debtor’s questions throughout the case;

F. Prepare, file, and serve necessary motions to buy, sell, or refinance real or personal property;*

G. Prepare and file a proof of claim for a creditor when appropriate to protect the debtor’s interest;

H. Object to improper or invalid claims when appropriate to protect the debtor’s interest;*

I. Advise the debtor in motions for relief from the automatic stay, file objections when appropriate, and appear, when required, at any hearing;*

J. Consider and advise the debtor concerning lien avoidance and, if appropriate, prepare, file, and serve necessary motions to avoid liens on real or personal property;

K. Prepare, file, and serve responses to motions for dismissal of the case;*

L. Advise the debtor of the requirement to complete an instructional course in personal financial management and the consequences of not doing so;

M. Prepare, file, and serve the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) and the Certificate of Debtor Education immediately after completion of plan payments;

N. Represent the debtor in connection with any audit request;* and

O. Represent the debtor in bringing and defending any and all other matters or proceedings in the bankruptcy case as necessary for the proper administration of the case.

III. The attorney shall comply with Local Rule 9010-3 and represent the debtor in bringing and defending all matters in the bankruptcy case until a substitution of attorneys is filed or an order is entered allowing the attorney to withdraw.

Unless otherwise agreed, the attorney has no responsibility to represent the debtor in adversary proceedings. However, if an adversary proceeding is filed against the debtor, the attorney will explain to the debtor the estimated cost of providing representation in the adversary proceeding, the risks and consequences of an adverse judgment, and the risks and consequences of proceeding without counsel, as well as the sources, if any, of possible pro bono representation.

IV. Before the case is filed, the chapter 13 debtor shall:

A. Fully disclose, review and analyze with the attorney the debtor’s real and personal property, all debts, income, expenses and all other financial information needed to properly complete the schedules and statements;

B. Prior to and throughout the case respond promptly to all communications from the attorney:

C. Prior to and throughout the case, timely provide the attorney with full and accurate financial and other information and documentation the attorney requests, INCLUDING BUT NOT LIMITED TO:

1. A Certificate of Credit Counseling and any debt repayment plan;

2. Proof of income received from all sources in the six-month period preceding filing, including pay stubs, social security statements, workers’ compensation payments, income from rental property, pensions, disability payments, child and spousal support, and income from self-employment.

3. The most recently filed federal and state income tax returns, or transcripts of returns, as well as any other returns requested by the attorney, the trustee, the court, or a party in interest;

4. A government-issued photo identification and proof of social security number, such as a social security card or W-2;

5. A record of interest, if any, in an educational individual retirement account or a qualified state tuition program;

6. The name, address, and telephone number of any person or state agency to whom the debtor owes back child or spousal support or makes current child or spousal support payments, and any and all supporting court orders, declarations of voluntary support payments, separation agreements, divorce decrees, or property settlement agreements;

7. Any insurance policies requested by the attorney;

8. Vehicle titles for all cars, trucks, motorcycles, boats, ATVs, and other vehicles titled in the debtor’s name;

9. Legal descriptions for all real property, wherever located, owned by the debtor or titled in the debtor’s name, or in which the debtor has any interest whatsoever, including but not limited to, a timeshare, remainder interest, or life estate;

10. Documents relating to any inheritance to which the debtor is entitled or may be entitled;

11. Information relating to any foreclosures, repossessions, seizures, wage garnishments, liens, or levies on assets which occurred in the preceding 12 months or continues after the filing of the case;

12. Information and documents relating to any prior bankruptcies filed by the debtor(s) or any related entity;

13. Any changes in income or financial condition, such as job loss, illness, injury, inheritance, or lottery winnings before or during the case;

14. Information and documents relating to any lawsuits in which the debtor is involved before or during the case or claims the debtor has or may have against third parties;

15. Information relating to any seizure of tax refunds by the IRS or Department of Revenue;

16. All information or documentation needed to respond to any motion or objection in the bankruptcy case;

17. Any tax returns, account statements, pay stubs, or other documentation necessary to timely comply with requests made by the United States Trustee or the Chapter 13 Trustee or any audit requests.

D. Cooperate with the attorney in preparing, reviewing, and signing the petition, schedules, statements, and all other documents required for filing a bankruptcy case.

V. After the case is filed, the chapter 13 debtor shall:

A. Timely and promptly comply with all applicable bankruptcy rules and procedures and with the terms of the chapter 13 plan;

B. Appear punctually at the meeting of creditors with recent proof of income, a government-issued photo identification card, proof of social security number, and copies of all financial account statements covering the date the bankruptcy petition was filed;

C. Make all required payments to the Chapter 13 Trustee, and to such creditors as are being paid directly, and inform the attorney if required payments cannot be made;

D. Contact the attorney before buying, refinancing, or contracting to sell real property and before entering into any loan agreement;

E. Keep the court, the trustee, and the attorney informed of the debtor’s current address and telephone number;

F. Complete an approved debtor education course and provide the certificate of attendance to the attorney for filing;

G. Pay all required domestic support obligations;

H. Cooperate with the attorney to complete and sign the Chapter 13 Debtor’s Certifications Regarding Domestic Support Obligations and Section 522(q) immediately after making the final plan payment.

VI. The chapter 13 debtor’s attorney shall, both before and after the case is filed, comply with all applicable professional and ethical rules and shall exercise civility in dealings with all entities with which the attorney comes in contact. The attorney shall also advise the chapter 13 debtor to likewise act in a civil and courteous manner, to dress in a manner appropriate for a federal proceeding and debtors shall do so.

Signatures. By signing this acknowledgment, the debtor and the attorney certify they have read it and understand what is required of the debtor and the attorney in this bankruptcy case.A fully executed copy of this document must be filed with the petition commencing the bankruptcy case of the debtor(s).

* Local Rule 2016-1(d)(2) provides that an attorney who performs these services after confirmation of the plan may request additional attorney’s fees and expenses in connection with such services.

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

hardley affordable motorcycle

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

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

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

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

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

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

Why Everything Has to be Disclosed when Filing Bankruptcy

Time in federal prison

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.