Creeping Debt and Chapter 13 Bankruptcy Debt Limits

Not long ago it seemed that $20,000 of credit card debt was a lot. I would file a bankruptcy for a person who had that without giving it a second thought. Now, however, as things go in my world, that’s not a lot of debt for most people. Unless the debtor is sick, disabled or hopelessly low income, I would be reluctant to file for someone with such a small debt.

What’s happening is that I rarely see anyone who’s not more than $50,000 in debt, and over $100,000 of consumer credit card debt is common. Once the total of the debt tops $100,000 I tend to ignore how much higher it goes, as my software keeps a running tally of the total. The fact is that for me, and I’m afraid for the whole country, the amount of credit card debt that seems normal is creeping steadily upward.

So the other day when I was reading my mail on a bankruptcy lawyer listserve, I had a bit of a start. One of the emails reminded me that for a Chapter 13 bankruptcy, there is a limit as to how much debt one is allowed to have. I quickly pulled out the most recent Chapter 13 I had filed and checked the balances of the debts, to make sure we had not exceeded the legal limit. Up until that moment it never occurred to me that one day someone will probably walk into my office with consumer debts in excess of the Chapter 13 limits. All of a sudden, those limits don’t seem as high to me as they used to. A lawyer who files a case where the limits are exceeded is subject to sanctions. If I did that it could cost me thousands of dollars. I must start paying more attention to those limits.

In order to qualify for a Chapter 13 bankruptcy, the person’s secured debt must not exceed $1,010,650 and the unsecured debt must not exceed $336,900. The way things are going right now, I would not be surprised to meet someone within the next week whose debts are over those limits. From my perspective the current economic downturn has been frightening and unbelievable.

I don’t mean to imply that I have never met a person with debts that high. Back in the early 1980s, during a serious recession we had in those years, I did a Chapter 7 bankruptcy for a real estate developer who had gone out of business and who had millions of dollars in debt. There’s no limit to the amount of debt you can run through a Chapter 7. I have also done Chapter 7 work for small business owners who’s debts would have exeeded the Chapter 13 limits.

But now people I see with consumer debt are actually starting to push those Chapter 13 limits, and that is something I have never seen before.

Bankruptcy and DWI, Judge Arrested

I have been practicing bankruptcy law and DWI defense for some time now, and it always seems a bit difficult to explain why those two areas of the law seem to mesh for me. So when I saw a story about a bankruptcy judge being arrested for DWI, I woke up and took notice.

Massachusetts bankruptcy judge Robert Somma won’t be returning to his job. Why? He has “agreed” to leave his job to pursue other endeavors. Seems he has been off work since his arrest for DWI in February. When I first read the headline I was surprised, because lots of public officials get DWIs. At least one of the Hennepin County judges currently on the bench has received a DWI while in office. They have to take their punishment, but they are not removed from their jobs.

There were other complications in Judge Somma’s case, however. Seems that when he was arrested, he was wearing a dress. That in itself, while a bit unusual, doesn’t seem to be justification for losing his job either. Apparently he was a good judge and well liked by those who practiced in his courtroom. There’s nothing illegal or unethical about wearing a dress that I know of, although I suppose I have to concede that it could have been inappropriate.

Here’s a link to the Boston Globe story.

Out of the office until May 21st.

I’m am on my way to Hollywood. That’s where the National Association of Consumer Bankruptcy Attorneys is having a big three day seminar. I’ll be gone between May 15th and May 20th. I’ll be back in the office on the morning of Wednesday May 21st.

I wish I could say I was going to be on American Idol, but that’s not it. There are things I can learn at this seminar that would be hard to find anywhere else. What it comes down to is that I can’t afford to not go. The law of bankruptcy has been in a hard to track state of flux since the new legislation became effective in late 2005. It seems that every few days a judicial decision turns up that changes the landscape. I need all the help I can get in keeping up with this stuff.

Of course, I am planning on seeing a few sights as well. I’m allowing one day in the trip just for that. Right now I would say that the beach could be a priority.

So email me or leave me a message. I will probably be checking my email. I no longer travel without my laptop. The wireless Internet for the hotel where I’ll be did get a poor review, but I expect I’ll figure it out. I’ll be returning my calls on Wednesday, May 21st.

Debtor Audits in Bankruptcy Cases Resume Today

My email today brought me a notice that the U.S. Trustee’s office is resuming debtor audits as of today. They stopped in January because Congress didn’t fund it.

An audit in this context involves the U.S. Trustee’s office hiring an outside accounting firm to go over the debtor’s records. Previously the policy was that one in 250 cases would randomly be audited. Now the policy is one in a thousand will be audited. That’s a 400% improvement, but I’m still sad to see this stuff starting again.

Minnesota Bankruptcy: The Income Limits

Since the passage of the “new law” in October of 2005, there have been rules based on level of income about who can file a Chapter 7 Bankruptcy. Unless you are at or below the median income for the State of Minnesota based upon your family size, you can only file a Chapter 7 if you pass the so-called means test. The means test is a whole other topic, which I will have to deal with some other time. For now, however, here’s a video I posted recently on Youtube where I discuss the median income levels for Minnesota by household size.

The numbers are subject to change every few months, but I have them posted on my site on my Chapter 7 page under the subheading of “Qualifying for Chapter 7 in Minnesota.”

David J. Kelly, Attorney
Kelly Law Office
1013 Ford Rd.
Minnetonka, MN 55305
952-544-6356
http://www.mn-bankruptcy.com/
http://www.mn-dwi.com/
http://www.kelly-law.com/

Bloviating about Short Sales on Youtube

The topic of short sales is hard to understand, and also hard to explain. In this video I spoke without a script, which I think was a mistake. I was trying to be clear, but I don’t think I got close to that goal. If I would have written a script first, it would have read about like what follows.

The term “short sale” can mean that:

1) The mortgage company will accept less than full payment and will release both the property and the debtors from the remaining balance of the debt; or

2)The mortgage company will accept less than full payment of the debt, will release the property from the mortgage, but will NOT release the individual debtors from the remaining unpaid balance of the debt.

I hear from lots of people who are trying to do a short sale, but don’t know which one they are trying to do or which one they want to do. The first kind leaves you in the clear, but the second variety brings you into my office in need of a bankruptcy.Most short sales are of the second variety, and they are worse than just doing nothing and letting the bank foreclose. Worse yet, often the realtors and mortgage companies involved in these transactions seem to purposely keep the sellers/debtors in the dark as to exactly what kind of deal it is.

If you are doing a short sale, you better consult an accountant about the tax consequences. Under certain circumstances, the amount of the debt forgiveness can be taxable income.This video and these comments are for general information purposes only and are not intended to be legal advice. Viewing these materials does not create an attorney-client relationship. I recommend that you consult the attorney of your choice concerning the details of your case.

David J. Kelly
Kelly Law Office
952-544-6356
http://www.mn-bankruptcy.com/

Youtube Video Bankruptcy Update Part IV

Rambling in front of the video camera the other day, it was not long before I got on the subject of how unethical, illegal, fraudulent and criminal it is to attempt charging attorney fees for a bankruptcy on a credit card – with the intent of getting rid of the credit card debt in that bankruptcy. If you run up a debt intending to list it in a bankruptcy, that is fraud. It can be grounds to have a particular debt not discharged in your case; or it could be grounds to have the entire bankruptcy thrown out. Worse yet, it’s fraud and could be prosecuted as a felony. Here’s what I said about it on Youtube:

Walking with a friend and mentor

Yesterday I got a call from my office-mate and friend Emanuel Serstock. He’s a former Minneapolis Assistant City Attorney, a former Ramsey County Assistant County Attorney, and a former Assistant Hennepin County Public Defender. We call him “Em.”

Em knows that I try to go for a good long walk most days, and that I have my favorite places to do this. In particular, he knows that I like to go to the Westwood Hills Nature Center, which is only about a half mile from our office. After an apparent heart attack last fall, he is under doctor’s orders to walk at least three times a week. When he called, he wanted to know if I would be walking that day and where would I be going. I said that I had been thinking in terms of a swim at my health club, but that I would be honored to walk with him if he was up for it.

An hour later he was at the office in his walking shoes, and we jumped in my Toyota Highlander. I drove the half mile or so to a back door entrance to the Westwood Hills Nature Center. After deciding whether we would take the track in a clockwise or counter-clockwise direction, we were heading down the trail. I had anticipated that he would have trouble keeping up with me, but the reverse was true. He’s a bit taller than me, so his legs are longer. I had been a bit worried about his health, but I’m not anymore. He was robust, vigorous and hard to keep up with.

We found that the ice is finally out and the water is open on the lake. We saw a loon, who was obviously migrating to somewhere further north. We also saw a colorful adult male turkey, which Em said reminded him of certain people he knows.

Em has been a good resource and mentor, helping me with many of my criminal defense cases. Compared to how much help he has given me, I have felt for some time that I owe him something. Going on this walk was an opportunity for me to show him something he had not known about, which I hope to some extent was a down payment on my repayment of my indebtedness to him.

Fraudulent Federal Subpoena Email

This morning I received an email which purported to come from the federal court in San Diego. It appeared to be a subpoena requiring that I appear in federal court May 9th in San Diego before a grand jury.

It also contained a link which I assume would have downloaded a virus onto my computer.

I called the court in San Diego and they confirmed that it’s a hoax. I have also spoken with a lawyer a the law office that is mentioned on the false document. He tells me all they have done there all morning is sit on the phone answering questions about the email. I lost a little time on it, but it’s really messing them up. So in case you get it, now you know.

Bankruptcy Update Part III – Spring 2008

Here’s another clip in the series that I have been working on. In this one I talk about how the Senate has eliminated a section of the pending mortgage relief legislation which would have allowed a bankruptcy judge to reduce the balance owing on a mortgage. The idea was that in those situations where the mortgage is more than the value of the property, the bankruptcy judge could reduce the balance of the mortgage to be equal to the value of the house. The rest of the balance of the mortgage would be discharged in the bankruptcy. Sounds like a wonderful idea to me. But the Senate committee didn’t think so. Too much lobbying by the banking industry.

So for the time being there is no provision in the bankruptcy law for an option to discharge the part of the mortgage that exceeds the value of the house, while allowing the balance of the mortgage to be a lien on the house. I feel as if I may be doing a bad job at explaining this. It’s the kind of thing that many non-lawyers might not understand. As a result, the Senate gets away with not passing a really beneficial piece of legislation, because nobody quite understands what it is they didn’t pass.