Marital status can make a big difference in a bankruptcy case.
There’s a certain amount of rejoicing in these parts over the events at the Minnesota legislature yesterday which appear to make legalization of gay marriage a certainty in this state probably by next week. I assume that we will have a lot of people who are now legally single soon becoming legally married.
I find myself thinking about all the times a married person has come in to see me about a bankruptcy and wanted to file individually and not jointly. I had to explain that for a married person it is usually best to do it jointly. When a married person insists on filing individually, I will often just refuse to take the case. I’ve actually done quite a few individual filings for married people, but I usually don’t want that case unless there is a really compelling reason to not file jointly. The probability of something going wrong in such a case is multiplied by a factor of I’m not sure what – but by a substantial factor. I don’t consider “but my wife has such a good credit score” to be a compelling reason.
For anybody thinking about both marriage and bankruptcy, you might want to consult with a competent lawyer concerning whether it would be best to file the bankruptcy before or after the wedding.
For me the starting point for most bankruptcy cases is a call from the prospective client. If you are reading this that could be you. Before anything else I like to do a screening over the phone. This can be done in about fifteen minutes, sometimes maybe a bit longer. No need to be afraid of me. I’m easy to talk to. There’s no fee for the phone conversation. If the information from the phone conversation indicates that bankruptcy is appropriate, whether that be a Chapter 7 or a Chapter 13, the next thing I want to do is meet face to face in my office for a more serious consultation. For this I will charge a small consultation fee, which I will have quoted in the phone conversation. I will credit the consultation fee against my fee for the case if we decide to go ahead. If I suggest that you come in for a consultation, it’s because I’m already fairly certain that it is a case I would accept.
There are four batches of information that I would ask you to bring when you come:
Forms. There are two forms on my web site, the bankruptcy questionnaire and the monthly expense sheet. Please print these two forms and fill them out in pen and ink. Pencil is OK too. Then bring them with you when you come. Some of the questions, especially on the first form, are hard to answer. If you can’t figure out the question, leave it blank and we’ll talk about it when you come in. Complete the expense sheet to the best of your ability, and we’ll go over those numbers when you come in too. Remember that things you charged on a credit card count as an expense as well as the things you paid for in cash or by means of your checking account.
Tax returns. I’d like to see your state and federal tax returns for the past two calendar years, along with your W2s and any similar supporting paperwork. At the time of writing this post, that would be the returns for 2011 and 2012. If you filed for a Minnesota property tax refund or Minnesota rent credit, I’d like to see that return for the past two calendar years as well. If you file separate returns for your corporation or LLC, bring them along as well.
Pay stubs and income information for the past seven months. I need to see the last seven months of pay stubs from your your job and from the job of your spouse. If you don’t have them, get them from your employer or from your employer’s web site. By seven months I mean the six previous months plus the month we are in. If you don’t have pay stubs because you are self employed, I need a spread sheet showing your gross income and your business-related expenses for that same seven month period. If you don’t have pay stubs because you are unemployed, I need detailed info on what unemployment benefits you are receiving and what taxes are being withheld from your benefits if any. If you are receiving child support or spousal maintenance, I would want dates and amounts received during that seven month period. If you are on Social Security or Social Security Disability, provide me with details of how much you received gross in the past seven months and what if anything was withheld from that. If there is any kind of income coming in from anywhere, I need to know about it.
Details about your debts. I want to see every piece of paper you have describing each and every debt. Include your credit cards, car loans, mortgages, tax debts, student loans and any fines and penalties you owe. I usually can’t make the student loans go away, but I still need to know all about them. You probably intend to keep paying your mortgages and car loans, but we need to list them anyway. Some of your tax debt may be dischargeable, but even if it isn’t we need to list it all. Be sure to include nasty letters from lawyers and collection agencies. Eventually we will be checking your credit report, but for the first meeting the information you have handy about your debt will probably be enough.
As you might have gathered by this point, that consultation in my office is usually quite thorough. I should be able to give you an opinion concerning your situation that will be worth the trip. Figure on spending an hour and a half – more if we are planning on running a means test.
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.
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.
I’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.
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 lessper 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.
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?
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.
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.
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.