Keeping Your House in a Chapter 7 Bankruptcy

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

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

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

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

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

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

Nothing is better than being debt free.

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

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

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

Seizure of Payments from a Reverse Mortgage

Protecting your home and your stuff

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

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

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

What NOT to do while going Over the Fiscal Cliff

Cliff near Pike's Peak

 

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

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

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

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

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

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

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

 

The Fiscal Cliff

Cliff near Pike's Peak

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

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

New Median Incomes for Minnesota Bankruptcy – Again

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

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

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

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

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

Garnishment Money Refunded by Bill Collecting Lawyer after Bankruptcy Filing

I just love when this happens.  I came in to the office this morning, checked the mail box, and here’s letter from one of the big bill collecting law firms.  Often those letters can be some kind of bad news, but today the letter contained a check for over $1000 for one of my clients.  This was a refund of the money that they garnished from my client’s pay check in the 90 days before we filed the bankruptcy.

So you might wonder how this can be.  After all, once a bill collector takes your money isn’t is just gone?  Most of the time it really is just gone, forever.  An exception to the rule, however, can be money that was garnished or seized within 90 days before the filing either of a Chapter 7 or a Chapter 13 bankruptcy.  The window for getting the money back is a pretty small one.  It’s necessary to have all the following before any of the money can come back:

  • It must be a case where the amount seized in the 90 days is over $600.  If it’s over that amount, it counts as what is called a “preference.”  If it’s less than that, it doesn’t count at all.
  • It has to be a bankruptcy case where the debtor is using the federal exemptions.
  • The debtor has to have claimed the preference amount as exempt using the wild card exemption under the federal exemptions.
  • The bankruptcy trustee has to have not objected to the claim of exemption for the preference.  The trustee has 30 days from the date of the meeting of creditors – what I call the hearing – to object to exemptions.  So this means that the 30 day time period has to have expired.
  • You have to actually contact the creditor or the creditor’s lawyer and ask for the money back.  If they won’t give it back, which is often the case, legal action can be taken to get it back.  I tell my clients to not bother with the legal action, however,  because the attorney fees would probably cost more than you would ever get back.

So what I tell my clients when we have this situation is that I will set up the bankruptcy petition so that the money is listed as a preference under assets and them claimed as exempt.  When the 30 day exemption period expires, I will write a letter and demand the money.  Then we wait and see if the money turns up.  It only does in about half or less of the  cases.

Many of the creditors are so nasty that they don’t care if the law requires them to give the money back.  They know that nobody can afford to pursue them  if they don’t.  But I am always joyful to see that check come in the cases where they do.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  Please consult the attorney of your choice concerning the details of your case.  I am a debt relief agency helping people to file for relief under the federal bankruptcy code.

Paying Off Your Chapter 13 Plan Early

Nothing is better than being debt free.
Nothing is better than being debt free.
Stick with your Chapter 13 Plan
From time to time I am asked the following question by a potential Chapter 13 client:  If somehow I could come up with the money, could I pay my Chapter 13 plan off early?  If you  have ever seen a Chapter 13 plan, it is easy to understand how this question would arise.  The plan document provides for monthly payments in a certain amount, and then it shows what the total of the payments over the life of the plan will be.  It shows how all the money is  to be applied – so much to unsecured creditors, so much to attorney fees, so much for the trustee’s fees, and certain amounts to taxes or other priority debts.  Usually it will even state in terms of a percentage exactly what fraction of the unsecured debts are being paid.

It seems obvious that once the plan is approved, if the Debtor could come up somehow with the total due under the plan, he or she should be able to  wrap it up early and get their discharge early.

Well, guess what.  That’s not how it works.  Or at least it usually is not how it works.  Simply stated the rule is this:  the only kind of Chapter 13 Plan that can be paid off early is a 100% plan.  Chapter 13 plans fall into two categories:  100% plans and  less than 100% plans.  In a 100% plan, all the unsecured debt is to be paid under the plan.  In a less than 100% plan, only a portion of the unsecured debt is to be paid.  The vast majority of Chapter 13 plans are of the less than 100% variety.

So in most plans, where less than all of the unsecured debt is scheduled to be paid, the trustee will welcome extra payments from folks who have come into extra money that was not expected, such as an inheritance or big bonus at work.  In fact the trustee might REQUIRE that such funds be paid into the plan.  But after that extra payment is made, unless the plan is of the 100% variety,  the regular plan payment is due again the next month – and that continues until the end of the plan or until 100% of the unsecured debts are paid, whichever comes first.

The result of all this is that in most Chapter 13 cases, it is self defeating to take draconian measures for the purpose of raising extra money to pay into the plan.  Unless you can raise enough to pay off 100% of the unsecured creditors who have filed their claims with the bankruptcy court, there’s no reason to make an extra effort.  In fact you might be more or less punished for any such extra efforts.

If you are in Chapter 13 and receive extra money from somewhere, consult your attorney about it right away.  If the  amount is significant enough you probably have an obligation to report it to the bankruptcy trustee.  Sometimes your lawyer can negotiate a deal which allows you to keep some of the funds and pay in only part of it.

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

David Kelly Law Office is a debt relief agency helping people to file for relief under the federal bankruptcy code.

At the Bankruptcy Institute Today and Tomorrow

It’s that time of year again.  Every October the bankruptcy section of the Minnesota State Bar Association puts on a two day continuing legal education program for the bankruptcy attorneys of the state.  Unlike the meetings of the National Association of Consumer Bankruptcy Attorneys, to which I also belong, these sessions include lawyers for the creditors as well as lawyers for the debtors.

There were multiple classees to choose from, and nobody could attend them all without the ability to be in more than one place at the same time.  First I attended a really boring session about amendments to the bankruptcy rules of procedure.  Boring but important.  I hate it but I need to know that stuff.  There was then a sessioabout law office technology, where they had a geek who frankly I had trouble following.  I think his presentation was aimed at law offices larger than what I operate.

The big excitement for the day, however, was the session on lien stripping.  As we filed in and found a place to sit, they were playing an old hit, “The Stripper,” over the sound system.  That lightened things up a bit.  Following the disappointment with the decision in the Fisette case, to which I have devoted an earlier post, the big question is where does lien stripping go from here.  It seems that the rules committee has finished work on a new local rule of procedure which outlines a proposed procedure for doing lien stripping in the District of Minnesota.  The rule has now been presented to the judges for consideration.  As they consider the rule, I expect they will ask for comments.  The new rule seems to assume that lien stripping will be legal in Minnesota, which of course is still undecided – at least not decided permanently and for good.  In my opinion the procedure will eventually become legal and common, but right now I’m still not sure what to make of it.

The proposed lien strip rule will require a motion prior to the confirmation of the Chapter 13 plan asking the court to issue an order establising the value of the home as compared to the amounts owing on  the mortgage liens.  This motion requirement appears to be an invitation to a fight with the lender and the lenders’ lawyers.  I’m not absolutely sure, but the impression I have is that the bankers’ and lenders’ lawyers on the committee outnumber the consumer bankruptcy lawyers on the committee, so that the proposed rule is coming out leaning way in the direction of the bankers.  If this rule is approved, it appears to me that it would make the procedure more risky and more expensive than what most of us were anticipating.

After the lien strip session I attended a session on how to prepare one’s law practice for a disaster, and another sessin about reaffirmation agreements.

So that’s what I learned in school today.

Minnesota Bill Collectors Going Out of Business?

Hennepin County District Court
Collection Agencies Going Out of Business?
Collection Agencies Closing Offices? Economy Worse then Expected?

Is the economy getting so bad that the bill collectors are going out of business?  From where I sit it appears that at least two of the old tried and true bill collectors have moved out of Minnesota.  When a bankruptcy case is filed, it is very important to be sure that all the creditors are being notified.  The notices are sent out to the creditors by US Mail by a central noticing center which is operated by the court.  When an address is bad or when a notice comes back in the mail in connection with one of my cases, I get notified of that right away by email from the clerk of court’s office. In cases where a collection agency has taken over an account, I always try to list both the original creditor and the agency in the bankruptcy papers.  If the debt has also been referred to a lawyer, I list the law firm on the list of creditors too.

For as long as I can remember, Allied Interstate has been one of the big collection agencies in these parts.  In recent times their office was within a few blocks of mine.  They were located in that big, white office building on the northwest corner of the intersection of I-394 and Highway 169 known as the Interchange Tower.  There was more than one occasion when I was about ready to go over there in person and yell at them.  To me they were an institution, kind of like the federal government.  It never occurred to me that they would not always just be there.  In bad economic times, I would have assumed that their business would have just gotten all the better.

You might imagine how shocked I was to receive a notice, and then another notice, telling me that the address I was using for Allied Interstate was bad.  Well, they had apparently been assigned a number of debts of a couple of my clients – so I had to find a new address for them.  At first I assumed that they had just moved to a new location in their old neighborhood.  As I almost always do when I have such a problem, I went to Google looking for a new address.  There were no results for Minnesota except what I already had.  I went to Bing.  Same result.  Next I tried to call all the phone numbers I could find for Minnesota locations of Allied Interstate.  More shock – they were disconnected.  Finally I stared trying locations outside of Minnesota.  They had been a nation-wide operation.  The first few numbers I tried were not being answered.  Finally someone answered at an Allied Interstate office in Ohio.  He said to use the following address:

Allied Interstate, PO Box 4000, Warrenton, VA 60197-6123

So I added that address to the list of creditors at the court web site for both of my cases, and it seems so far to have been a good address.  Meanwhile a notice that I had sent to an Illinois office of Allied Interstate came back in the mail as well.  One has the impression that this outfit is not doing so well.

Not long after this business with Allied Interstate, I received notice that an address I had been using for one of the bill collecting law firms was bad.  They were it seemed to me a lot like Allied Interstate in that they had been around forever.  To me they seemed to be one of the top law firms that over the years had driven many of my clients to my door.  Their office had always been in St. Paul, but they sued people from all over the Twin Cities.  Again I went to Google and several other sources.  What I found or seem to have found is that they closed their St. Paul office and are now doing business from their home office in another state.

From day to day I see little indicators – including the above – that the economy is worse than anybody in the media outlets wants to admit.

This 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.