Three Bad Bankruptcy Mistakes Before Filing Bankruptcy

Three Bad Bankruptcy Mistakes Before Filing Bankruptcy

The bankruptcy laws are confusing and complicated. Fortunately Congress and the US Supreme Court have given us a guidepost by stating that the bankruptcy laws exist to help debtors who are poor and honest. The bankruptcy trustee will investigate your case to determine whether you are both poor and honest. Excess money or equity in property can be taken to pay creditors, and efforts to hide money or assets will be punished. With this in mind, here are three bad mistakes you can make before filing bankruptcy:  

Mistake #1: Cashing Retirement Funds

Most retirement funds are fully protected from creditors and the bankruptcy court. That means if you file bankruptcy, you keep your retirement money. Congress wants you to have money for your retirement.

Along with the obvious problems associated with losing your future retirement money, cashing out retirement funds is also huge mistake because (1) your attorney may no longer be able to protect available retirement money converted into cash; and (2) in some cases the money you pay on a loan may be recoverable by the bankruptcy trustee. Money paid to creditors before bankruptcy does not improve your financial situation or help you recover from bankruptcy. Always discuss cashing out 401(k) or IRA retirement funds with your attorney prior to your filing bankruptcy.

Mistake #2: Transferring Property for Less Than Full Value

Anytime an individual transfers property for less than full value, the transfer seems “suspicious.” This is especially true when the transfer occurs just before a bankruptcy filing. The bankruptcy trustee scrutinizes all property transfers before bankruptcy, and if a property transfer was not a fair and honest exchange, the trustee may avoid the transfer and get the property back.

One common bankruptcy mistake is transferring property to a friend or family member in an effort to hide it from the bankruptcy court. This is a very bad mistake that can result in: (1) losing the property anyway; (2) denial of your bankruptcy discharge; and/or (3) criminal prosecution for bankruptcy fraud. If you need to sell or transfer property before your bankruptcy, contact an experienced attorney and discuss your options!

Mistake #4: Paying Off Loans

When a debtor pays off a loan before bankruptcy, the trustee becomes very interested in your case. First, if you paid a large sum of money to one creditor just before filing, the trustee may ask the creditor to return the money.  Second, paying off an unsecured creditor that is otherwise dischargeable (like a credit card or payday loan) is like throwing your money away. You need that money to help rebuild your finances. 

Finally, paying off secured property could create too much non-exemptible equity. The bankruptcy laws allow you to keep property up to a certain amount. The protected amount is determined by taking the fair market value of the property minus any secured loans. When you pay off the loans, you increase your equity in the property which may exceed the amount you are allowed to keep. When that happens the bankruptcy trustee may ask you for the property or the cash difference between the equity and the exemption amount. Bottom line: don’t pay off loans before bankruptcy!

If you are struggling financially, avoid these common bankruptcy mistakes by discussing your situation with an experienced bankruptcy attorney. Your attorney can guide you through the bankruptcy process and help you emerge on the other side with a brighter financial

Winning the Lottery May Not Help

Winning the Lottery May Not Help

Who hasn’t fantasized about winning the lottery when you are cash strapped? It seems that winning the lottery would solve all of your financial problems.

Not so fast.

A March 2010 study by economists at the University of Kentucky, University of Pittsburgh, and Vanderbilt University suggests that winning the lottery does not reduce the likelihood of a future bankruptcy. The study examined data from 35,000 winners of Florida's Fantasy 5 lottery from 1993 to 2002, and compared this information with state bankruptcy records. The economists found that more than 1,900 lottery winners filed for bankruptcy relief within five years after winning, a rate double that of the general population during the study period.  "The results show that giving $50,000 to $150,000 to people only postpones bankruptcy," the authors concluded.

Not every lottery winner will act like Callie Rogers, winner of a $3 million UK lottery in 2003. Callie spent every dime of her winnings on shopping, cocaine, friends and breast augmentation, and two years ago she was working as a maid. But then, Callie was probably not a skilled money manager, like the three co-workers who won a $254 million Powerball lottery in Connecticut. If you are lucky enough to win a large lottery, these professionals offer a blueprint on how to protect your money from yourself.

Financial management may seem like common sense, but Americans have many pressures to spend now and worry about the consequences in the future. It takes a reasoned approach and discipline to make a budget and stick to it. To help educate individuals and combat financial illiteracy, Congress amended the bankruptcy laws to require debtors to complete a course in financial management before the completion of the bankruptcy case. The hope is that by providing a bit of education, the debtor will take a more active interest in managing his or her finances and avoid future costly mistakes.

If you are battling insurmountable debt, don’t wish for a magical cure. Take charge of your finances and educate yourself about your options. Speaking with an experienced bankruptcy attorney is a solid first step in taking control and building a better future.

Are Your Family Finances Sustainable?

Are Your Family Finances Sustainable?

Corporate Knights, a Canada-based sustainability-focused media firm, publishes a unique list every year that predicts the world's most sustainable large corporations. Started in 2005, the Global 100 Most Sustainable Corporations in the World is a list of publicly traded companies that, based on research and analysis, are best equipped to manage the environmental, social and governance (ESG) risks and opportunities they face. The idea is to look at the company today and predict the company's future ability to thrive.

Predicting the financial future of a company is tricky business. Of the original 100 announced in 2005, ten companies on that list are now inactive. Another good example is Eastman Kodak, which appeared on the Global 100 list in 2005, 2006, 2007, 2008, and 2009. Kodak is synonymous with photography, and has a long and proud history. Kodak practically invented the amateur photography market back in 1888. Kodak is also responsible for the first digital camera in 1975 and developed cell phone photo technology. Unfortunately, in recent years Kodak has not changed fast enough to keep up with the changing marketplace. Kodak's shares once soared to an all-time high of $95 in 1997 and was a mainstay member of the Dow Jones industrial average for 74 years. In September 2011 its stock plummeted to close at $.69 a share.

Eastman Kodak is a lesson of how quickly the financial outlook of a company can change. Individuals, like companies, sometimes make bad decisions that can lead to financial trouble. Other times, circumstances happen that simply cannot be predicted. Fortunately, what looks bleak today can be better tomorrow. That is a hope that bankruptcy offers to individuals who are struggling with overwhelming debt. Bankruptcy offers the individual the "do over" opportunity to discharge or restructure debts.

If you need help reshaping your financial future, consult with an experienced attorney and discuss how the federal bankruptcy laws can help. Your attorney can offer you options for eliminating debt and making your finances sustainable for years to come.

Help! My Bank Account Is Frozen!

Help! My Bank Account Is Frozen!

Fewer things can throw your world upside down like having your bank account frozen. A bank garnishment or seizure is usually the result of a creditor attempting to collect after a court has issued a judgment against you. The court orders the bank to freeze your account and turn over its proceeds to the judgment creditor. The order is usually timed by the creditor's attorney to take effect just before your paycheck is deposited. Seizing a bank account is generally a creditor's first action because federal and state laws limit the amount that can be garnished directly from an employee’s paycheck. These limitations do not apply to cash money in a bank account.

Once your bank account is frozen, it is important to act quickly. You are entitled to protect some money from garnishment, but you must notify the court, the creditor, and the bank that you are asserting your legal exemption rights. Additionally, if you receive Federal benefits that are directly deposited into your bank account, the federal law will protect an amount equal to two months of these benefits. These benefits include Social Security benefits, Supplemental Security Income benefits, Veteran’s benefits, Railroad Retirement benefits, and benefits from the Office of Personnel Management. Federal benefits are exempt from garnishment, and the law places the burden on the bank to determine if the funds are protected.

Finally, a bankruptcy filing will immediately stop a garnishment and unfreeze your bank account. A debtor can often force the garnishing creditor to return money seized just prior to a bankruptcy filing. The general rule is that involuntary payments that amount to over $600 seized by a creditor in the 90 days before filing can be recovered.

If you have had your bank account seized, it is important to speak with an experienced bankruptcy attorney immediately and discuss your short term and long term options. Quick action is necessary to unfreeze your account, but it is also important to discuss your long term plan to avoid garnishments in the future. Your attorney can help you decide on a sensible plan to eliminate your debt and progress to a better financial future.

Ensure Your Fresh Start Is Not A False Start

Ensure Your Fresh Start Is Not A False Start

Even in today’s specialized legal world, there are still some “general practice” attorneys who work in many different areas of the law. A general practice attorney may represent clients in family law like divorces with little or no property, minor criminal issues, small land disputes, small probate estates, low dollar personal injury cases, and the like. While a general practice attorney can successfully represent clients in many legal matters, some areas of the law require a more specialized knowledge.

From the outside, a bankruptcy case seems like a simple process. You attend a couple education classes, there are standardized forms that are filled out, you pay a filing fee, and finally go to a meeting with the bankruptcy trustee. Simple, right? In some cases it is that easy, but don’t let bankruptcy’s streamlined process fool you.

Bankruptcy is a mixture of state and federal statutes, case law, procedural rules, and court and creditor customs. General practice attorneys are just not as familiar with these various rules and practices. An experienced bankruptcy attorney is also able to identify problem areas, like preferential payments to creditors or equity issues, which could have serious consequences to your bankruptcy case. Even the timing when a bankruptcy is filed can have consequences to your case. For instance, bankruptcy debtors lose their tax refund checks each year because they filed either too early or too late.

Hiring an experienced bankruptcy attorney ensures that your case will be filed correctly; that any potential trouble areas in your case will be identified and discussed before your case is filed; that you will be informed of how your case is progressing; and that you will be represented in all communications with creditors and the bankruptcy trustee. Hiring an experienced bankruptcy attorney gives you peace of mind knowing that your case is being handled correctly and competently.

Hiring experienced counsel to represent you has one more benefit – reputation. The local bankruptcy trustee and judge are familiar with your bankruptcy attorney. They have confidence that your petition and schedules are drafted correctly and that the attorney is representing the client ethically and competently. That confidence is not present with the general practice attorney. The trustee and judge are skeptical that the paperwork is correct and wonder what has been “overlooked.” Consequently, the case is scrutinized more than average.

If you are looking for an attorney to represent you in your bankruptcy case, hire someone who has devoted his or her practice to bankruptcy law. Your property and future financial success is too important to risk. Hire an experienced bankruptcy attorney and ensure that your fresh start is not a false start.

Filing Bankruptcy After Job Loss

Filing Bankruptcy After Job Loss

Many American families rely on two incomes to pay the monthly bills and set a little aside as savings. When one income is unexpectedly reduced or eliminated, the family is thrust immediately into a crisis mode. Often there is not enough money to pay all of the family bills, so touch choices must be made.

The first thing to do is to be realistic and not overreact. It is important to use savings wisely during this time and to safeguard retirement. Spending these funds to maintain your lifestyle is not good financial management, and will have long-term consequences. In most cases a substantial amount of cash and all of your retirement funds can be protected if you need to file bankruptcy. Likewise, most assets are protected during bankruptcy, so it is not necessary to sell assets to pay creditors.

Second, prioritize your spending. This may mean eliminating or reducing certain “luxuries” like premium tv channels or inflated cell phone plans. Creditors must be prioritized also. For instance, it may be more important to pay the car payment instead of a medical bill. If you file a Chapter 13 bankruptcy, your secured creditors receive a higher priority than unsecured creditors. That means your home mortgage and car payment are paid before credit cards and medical bills. You keep the house and car while unsecured creditors receive little or nothing.

Third, understand the consequences of late payment and default. There may not be enough money to pay all of your creditors, so what happens if you don’t pay a bill? In some cases filing bankruptcy will actually help your credit over the long haul. Bankruptcy stops all creditor action, including negative reporting to the credit bureau. By filing bankruptcy you can avoid additional negative reports like late payments, default, charge-offs, repossession or foreclosure.

Whether to file bankruptcy after a job loss depends on a number of circumstances. The best advice is to consult an experienced bankruptcy attorney and discuss your financial options. Bankruptcy can help you reorganize your finances when there is not enough money to pay all creditors. Your attorney can help you prioritize your spending and protect your assets.

Report Indicates That Foreclosures May Soon Increase

Report Indicates That Foreclosures May Soon Increase

September foreclosure filings fell 38% from one year ago, according to information released by RealtyTrac.com. This may seem like good news, but there is reason to believe that the foreclosure rate may soon increase.

First, the foreclosure process came under attack during the past year prompting many banks to slow or temporarily stop foreclosure proceedings. Banks and mortgage servicers have taken corrective actions over the past twelve months, and there is no evidence that previous sloppy practices are continuing. On the contrary, there is evidence that banks are being more cautious in dealing with foreclosures. The time the average foreclosure takes has increased to 336 days, up 18 days from the previous quarter.

Second, while the number of foreclosures is down for the year, the number of September foreclosure filings increased 6% from August. “This marginal increase in overall foreclosure activity was fueled by a 14% jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months spent trying to clear the chimney of sloppily filed foreclosures,” says RealtyTrac Chief Executive James Saccacio.

 “While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up," Saccacio said in a statement.

If you find yourself unable to pay your mortgage and facing foreclosure, get professional help. An experienced bankruptcy attorney can provide you with options to catch up payments over three to five years, modify your existing mortgage, strip away an entirely unsecured junior lien, or even walk away from your house and the debt on your own terms. 

Once a bankruptcy case is filed, the federal law stops all collection action – even foreclosure! Bankruptcy gives you a “breathing spell” to organize your finances and propose a plan to restructure your debt. In many cases debtors are able to save their homes while discharging thousands of dollars in unsecured debts, including credit cards, personal loans, and medical bills.

Don’t be another statistic! Get the information you need to make a sound financial decision regarding your home. Call an experienced attorney today and learn how the federal bankruptcy laws can help you!

Homeowners Foreclose On Bank of America

Homeowners Foreclose On Bank of America

Call it poetic justice, or even karma. . .

During the past few years Bank of America has been at the subject of harsh criticism for business practices that range from the mean-spirited (such as doubling credit card interest rates without notice, up to 28% for cardholders in good standing), to irresponsible (such as foreclosing on the wrong homes), to even fraudulent (such as the recent robo-signing scandal involving mortgage documents).  Bank of America is the nation’s largest servicer of mortgage loans, and the second largest mortgage loan originator. You’d think good record keeping would be important to such a large company, but apparently mistakes abound at Bank of America.

Take for example the case involving Florida couple Warren and Maureen Nyerges. In 2009 the couple moved from chilly Cleveland, Ohio, to warm Naples, Florida. They purchased a foreclosed home from Bank of America and paid $165,000 cash. However, in February 16, 2010, Bank of America filed a Complaint to Foreclose on Mortgage against them, claiming the Nyerges owed almost $141,000 in unpaid mortgage debt.

Warren Nyerges, 46, a former sheriff’s deputy in Ohio, spent months trying to dismiss the suit and clear up Bank of America’s error. In April of 2010, the lawsuit was dropped, and in December the Nyerges were awarded $2,534 in attorney fees. The bank did not respond to the repeated requests to pay the court judgment. Warren called the bank, sent certified letters, called the bank’s attorney, but nothing worked. Then, in January, he hired an attorney to pursue the case. The attorney sent letters and made phone call, and still Bank of America failed to respond or pay the judgment.

On June 3, the attorney for the Nyerges, accompanied by Collier County deputy sheriffs and a moving company, arrived at a local branch of Bank of America and presented the bank manager with a writ of execution to seize assets: either pay up or the movers will start taking things. An hour later checks were cut to satisfy the court judgment.

This may seem to be an extreme example of one case that has fallen through the cracks, but the truth is that banks make errors regularly. In Utah and Nevada courts issued foreclosure injunctions against Bank of America for improper practices. Other banks have also had their share of problem in producing mortgage documents and verifying that the bank is the rightful holder of the mortgage.

If you are facing foreclosure, don’t get steamrolled by the bank! You have legal options to negotiate a lower payment or possibly strip away a junior mortgage. Call today and discover how the federal and state laws can help you save your home and protect your rights.

Beware Of Debt Settlement Company Promises

Beware Of Debt Settlement Company Promises

In theory debt settlement is simple: the debtor negotiates with the creditor to reduce a debt to an amount that is regarded as payment in full. It sounds honest enough: the debtor cannot afford to repay a debt, so the creditor agrees to accept a reduction. The creditor is paid something and the debtor avoids bankruptcy.

In practice debt settlement is a nasty game of chicken. The debt settlement company advises the debtor to stop making monthly payments to the creditor. In response, the creditor pressures the debtor to pay through harassing telephone calls, damage to the debtor’s credit report, mounting interest and fees, and perhaps legal action. The resolution comes when one side blinks: either the creditor is convinced that it better take a settlement or risk discharge in bankruptcy; or the debtor realizes that his or her credit is ruined and actually files bankruptcy.

Debt settlement is big business, but many debt settlement companies have caused big trouble for their clients. Take for example Debt Relief USA. This company, like many debt settlement companies, advised its customers to stop paying its creditors and instead deposit money into a Debt Relief USA settlement account. This money, held by Debt Relief USA, was to be used as settle funds for the individual’s debts. Customers were assessed fees for services including burdensome “administration fees” and monthly “maintenance fees” that further damaged its customers’ financial situations. When a debt was settled, the Debt Relief USA charged a 13 percent “negotiation fee.”

In 2009 Debt Relief USA filed a Chapter 11 bankruptcy and claimed that it owed its clients $5 million from these settlement accounts.  In December 2010, the bankruptcy court approved a $3.7 million disbursement to Debt Relief USA’s clients. The case was also converted to Chapter 7 and Debt Relief USA is no longer conducting business.

Bankruptcy attorneys regularly see the damage caused by debt settlement companies. In some cases money is not returned to debt settlement customers, or the company itself files bankruptcy, or the individual’s credit is destroyed. Before agreeing to any debt relief program, discuss your financial situation an experienced bankruptcy attorney. There are powerful federal laws that can protect you from overwhelming debt, and a bankruptcy attorney can review your legal options without risking your cash.

Bankruptcy Fraud Can Mean Big Trouble

Bankruptcy Fraud Can Mean Big Trouble

The federal bankruptcy process is streamlined to provide timely financial relief to deserving individuals. A Chapter 7 “erase-your-debts-and-start-fresh” bankruptcy generally takes a mere 4-5 months, start to finish. The debtor discharges burdensome unsecured debt, and may get additional relief by restructuring secured debts.

A trustee is assigned to each bankruptcy case. The trustee has hundreds of cases each month to review, and a bankruptcy judge will preside over thousands of bankruptcy court cases. Consequently, the Chapter 7 process relies heavily upon the honesty and candor of the debtor who is required to accurately account for all income, expenses, assets and debts. The vast majority of debtors are honest, but the Department of Justice (DOJ) estimates that one out of ten cases have some element of fraud attached to it. When fraud is suspected, bankruptcy trustees aggressively investigate and use the resources of the DOJ, the FBI, and the IRS.

Bankruptcy fraud carries a maximum penalty of 5 years in prison and a $250,000 fine. Those convicted on federal bankruptcy fraud charges spend an average of 31 months in prison. Still, some people never learn. . .

The Portland Division of the FBI recently issued a press release concerning a bankruptcy debtor’s guilty plea to fraud charges. Viengkham Virasak, 44, of Corvallis, Oregon, incurred debt in his family members’ names and then filed bankruptcy cases in their names. Virasak actually discharged $87,500 in debt, and then filed other bankruptcy cases when he was discovered.

In May, former baseball player Lenny Dykstra was indicted on bankruptcy fraud charges. The indictment alleges that Dykstra took and sold items from his $18 million mansion after filing for bankruptcy protection. Once an individual files Chapter 7 bankruptcy the assets of the individual become part of a “bankruptcy estate” which is the responsibility of the trustee. The trustee claims that “Dykstra stole and destroyed more than $400,000 worth of property in the estate.”

Bankruptcy fraud is serious business. Dishonest acts during bankruptcy could cause the court to deny your discharge, or you may face criminal charges. Whatever your financial situation, it is best to discuss your options with an experienced bankruptcy. The bankruptcy laws are written to help the honest, but unfortunate debtor. Your attorney can work to achieve the best legal result possible and keep you out of trouble.

I Have My Bankruptcy Discharge. Now What?

I Have My Bankruptcy Discharge. Now What?

You should obtain a copy of your credit report immediately after receiving your bankruptcy discharge. Federal law entitles you to one free credit report from the “big three” credit reporting agencies, Experian, Equifax, and TransUnion, every twelve months. The easiest way to obtain your free credit report from each of these agencies is by visiting AnnualCreditReport.com.

After receiving your free credit reports, check each report for errors. First, any debt discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” Second, there should not be any negative activity reported after the date that you filed your bankruptcy case. This includes any new collection agency report after your filing date. Third, any debt that was reaffirmed should not be listed as “Discharged in Bankruptcy,” and should list your on-time payments. Finally, in some cases inaccurate information will be reported. For instance, a car voluntarily surrendered back to a creditor during a bankruptcy is not a “repossessed vehicle” and should not be reported as such.

Correcting any errors on your credit report is simple and easy. Each reporting agency has procedures from contesting erroneous information, either by mail or on-line. Once the credit agency has updated its records, it must issue you a free corrected report. Review this new report for errors; do not assume that the report has been correctly amended. You may need to correspond with the agency several times and supply documentation regarding your bankruptcy case. It is your responsibility to ensure that your credit report is accurate. Neither the bankruptcy court, nor your attorney, nor your creditors are responsible for sending the credit reporting agencies information regarding your bankruptcy case.

Updating and correcting your credit reports is the first step on the road to rebuilding your credit after bankruptcy. Fortunately, this step is free and takes very little effort. Be sure to correct your credit reports and then closely monitor your credit regularly for the first two years after your bankruptcy discharge. With timely payments and by carefully protecting your credit file, your credit score will increase quickly.

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

One of the most serious questions a client may ask is, “If I file Chapter 7 bankruptcy, can I keep my vehicle?” Like many simple, straight-forward legal questions, there are no simple, straight-forward legal answers. However, while each case is different, the vast majority of bankruptcy debtors keep their vehicles during Chapter 7.

Keeping a vehicle during Chapter 7 bankruptcy starts with a simple accounting: is the fair market value of the vehicle more than the amount owed on the loan? In other words, does the debtor have equity in the vehicle? If there is no equity in the vehicle, the Chapter 7 trustee cannot take and sell it since there is no benefit to the unsecured creditors.

On the other hand, if there is vehicle equity, that equity must be protected otherwise the trustee can take and sell the vehicle to reach the unprotected equity. The vehicle’s equity may be protected by one or more legal exemptions. The total amount of exemptions available to a debtor is determined by state and/or federal law and varies from state to state, and case to case. In some cases the ownership of the vehicle may protect the vehicle’s equity, such as in cases of joint ownership with a non-filing party.

If the vehicle has unprotected, non-exempt equity, the debtor has a few options. First, instead of taking and selling the vehicle, the trustee may accept a cash payment. Generally this cash payment is less than the amount of available equity, because there are actual costs involved in selling the vehicle. Second, the debtor may consider a Chapter 13 bankruptcy. A payment equal to the amount of non-exempt equity must be paid to the debtor’s unsecured creditors during the Chapter 13 plan, but this payment is stretched over 36-60 months. Third, the debtor may choose to allow the trustee to sell the vehicle. Any claimed exemption will be paid to the debtor from the proceeds of the sale. Finally, the debtor may choose to trade or sell the vehicle prior to bankruptcy and use any proceeds for necessary household expenses.

The truth is that it is rather unusual for a debtor to have a vehicle equity issue during Chapter 7 bankruptcy. If you have a vehicle with a great deal of equity, your bankruptcy attorney can discuss your options for keeping your vehicle and protecting your equity.

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

One of the most serious questions a client may ask is, “If I file Chapter 7 bankruptcy, can I keep my vehicle?” Like many simple, straight-forward legal questions, there are no simple, straight-forward legal answers. However, while each case is different, the vast majority of bankruptcy debtors keep their vehicles during Chapter 7.

Keeping a vehicle during Chapter 7 bankruptcy starts with a simple accounting: is the fair market value of the vehicle more than the amount owed on the loan? In other words, does the debtor have equity in the vehicle? If there is no equity in the vehicle, the Chapter 7 trustee cannot take and sell it since there is no benefit to the unsecured creditors.

On the other hand, if there is vehicle equity, that equity must be protected otherwise the trustee can take and sell the vehicle to reach the unprotected equity. The vehicle’s equity may be protected by one or more legal exemptions. The total amount of exemptions available to a debtor is determined by state and/or federal law and varies from state to state, and case to case. In some cases the ownership of the vehicle may protect the vehicle’s equity, such as in cases of joint ownership with a non-filing party.

If the vehicle has unprotected, non-exempt equity, the debtor has a few options. First, instead of taking and selling the vehicle, the trustee may accept a cash payment. Generally this cash payment is less than the amount of available equity, because there are actual costs involved in selling the vehicle. Second, the debtor may consider a Chapter 13 bankruptcy. A payment equal to the amount of non-exempt equity must be paid to the debtor’s unsecured creditors during the Chapter 13 plan, but this payment is stretched over 36-60 months. Third, the debtor may choose to allow the trustee to sell the vehicle. Any claimed exemption will be paid to the debtor from the proceeds of the sale. Finally, the debtor may choose to trade or sell the vehicle prior to bankruptcy and use any proceeds for necessary household expenses.

The truth is that it is rather unusual for a debtor to have a vehicle equity issue during Chapter 7 bankruptcy. If you have a vehicle with a great deal of equity, your bankruptcy attorney can discuss your options for keeping your vehicle and protecting your equity.

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

One of the most serious questions a client may ask is, “If I file Chapter 7 bankruptcy, can I keep my vehicle?” Like many simple, straight-forward legal questions, there are no simple, straight-forward legal answers. However, while each case is different, the vast majority of bankruptcy debtors keep their vehicles during Chapter 7.

Keeping a vehicle during Chapter 7 bankruptcy starts with a simple accounting: is the fair market value of the vehicle more than the amount owed on the loan? In other words, does the debtor have equity in the vehicle? If there is no equity in the vehicle, the Chapter 7 trustee cannot take and sell it since there is no benefit to the unsecured creditors.

On the other hand, if there is vehicle equity, that equity must be protected otherwise the trustee can take and sell the vehicle to reach the unprotected equity. The vehicle’s equity may be protected by one or more legal exemptions. The total amount of exemptions available to a debtor is determined by state and/or federal law and varies from state to state, and case to case. In some cases the ownership of the vehicle may protect the vehicle’s equity, such as in cases of joint ownership with a non-filing party.

If the vehicle has unprotected, non-exempt equity, the debtor has a few options. First, instead of taking and selling the vehicle, the trustee may accept a cash payment. Generally this cash payment is less than the amount of available equity, because there are actual costs involved in selling the vehicle. Second, the debtor may consider a Chapter 13 bankruptcy. A payment equal to the amount of non-exempt equity must be paid to the debtor’s unsecured creditors during the Chapter 13 plan, but this payment is stretched over 36-60 months. Third, the debtor may choose to allow the trustee to sell the vehicle. Any claimed exemption will be paid to the debtor from the proceeds of the sale. Finally, the debtor may choose to trade or sell the vehicle prior to bankruptcy and use any proceeds for necessary household expenses.

The truth is that it is rather unusual for a debtor to have a vehicle equity issue during Chapter 7 bankruptcy. If you have a vehicle with a great deal of equity, your bankruptcy attorney can discuss your options for keeping your vehicle and protecting your equity.

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

Can I Keep My Vehicle During Chapter 7 Bankruptcy?

One of the most serious questions a client may ask is, “If I file Chapter 7 bankruptcy, can I keep my vehicle?” Like many simple, straight-forward legal questions, there are no simple, straight-forward legal answers. However, while each case is different, the vast majority of bankruptcy debtors keep their vehicles during Chapter 7.

Keeping a vehicle during Chapter 7 bankruptcy starts with a simple accounting: is the fair market value of the vehicle more than the amount owed on the loan? In other words, does the debtor have equity in the vehicle? If there is no equity in the vehicle, the Chapter 7 trustee cannot take and sell it since there is no benefit to the unsecured creditors.

On the other hand, if there is vehicle equity, that equity must be protected otherwise the trustee can take and sell the vehicle to reach the unprotected equity. The vehicle’s equity may be protected by one or more legal exemptions. The total amount of exemptions available to a debtor is determined by state and/or federal law and varies from state to state, and case to case. In some cases the ownership of the vehicle may protect the vehicle’s equity, such as in cases of joint ownership with a non-filing party.

If the vehicle has unprotected, non-exempt equity, the debtor has a few options. First, instead of taking and selling the vehicle, the trustee may accept a cash payment. Generally this cash payment is less than the amount of available equity, because there are actual costs involved in selling the vehicle. Second, the debtor may consider a Chapter 13 bankruptcy. A payment equal to the amount of non-exempt equity must be paid to the debtor’s unsecured creditors during the Chapter 13 plan, but this payment is stretched over 36-60 months. Third, the debtor may choose to allow the trustee to sell the vehicle. Any claimed exemption will be paid to the debtor from the proceeds of the sale. Finally, the debtor may choose to trade or sell the vehicle prior to bankruptcy and use any proceeds for necessary household expenses.

The truth is that it is rather unusual for a debtor to have a vehicle equity issue during Chapter 7 bankruptcy. If you have a vehicle with a great deal of equity, your bankruptcy attorney can discuss your options for keeping your vehicle and protecting your equity.

New Federal Protection for Exempt Bank Funds

A new federal rule set to take effect on May 1, 2011, will increase protection for exempt funds in a garnished bank account. Federal law already protects many federal benefits, but it is currently the responsibility of the individual to claim these funds as exempt. Often the bank will freeze a bank account pursuant to an order and the individual must request a court hearing to release the funds.

Under this new Treasury Department rule, an electronic tag will be added to automatic deposits from government agencies. These funds include Social Security, Supplemental Security Income (“SSI”), Veteran’s Administration (“VA”) benefits, federal Railroad Retirement, federal Railroad Unemployment and Sickness benefits, federal Civil Service Retirement benefits and federal Employee Retirement System benefits. Banks are required to exempt all tagged deposits made during the previous two months and protect those deposits from garnishment. The consumer is no longer required to take any action to claim or identify exempt funds. The rule makes banks not liable to creditors for refusing to garnish the tagged funds, even if the money is co-mingled with other non-exempt money.

The National Consumer Law Center estimates that more than 1 million people each year have accounts garnished that contain exempt federal funds. Recipients are often sick or elderly and may be forced to forego needed food and medicine when an account is frozen.

This new rule applies to all federally chartered federal and state banks and credit unions. While there is no cap on the amount of protected funds, the automatic protection only applies to the previous two months. Exempt funds must be deposited electronically to receive the identifying tag. Deposits made by paper checks are still exempt, but the bank is under no obligation to identify these funds or protect them from garnishment. The rule does not apply to military retirement or state issued benefits.

There are many powerful consumer protection laws. If you have a judgment against you and are at risk of a bank or wage garnishment, consult with an experienced bankruptcy attorney and discover how the law can help. Your attorney can discuss your legal options to make the best of a bad situation.

The Costs of Representing Yourself in a Bankruptcy Case

The Costs of Representing Yourself in a Bankruptcy Case

Remember that time is money.

- Benjamin Franklin (1748)

Several years ago Ian Walker, a professor of economics at Warwick University in England, developed a mathematical formula to show the personal cost of an activity like mowing your lawn or washing your car. The formula looks like this:

V=(W((100-t)/100))/C

V is the value per hour;

W is your hourly wage;

t is your tax rate (e.g. 15%, 20%, etc.)

C is the local cost of living, which is a baseline of 1.0. If you live in an area that is 50% more expensive than the national average, use 1.5

For a person making $20.00 per hour, and a tax rate of 25%, the value per hour is $15.00, or $.25 per minute. Spending an hour mowing your lawn is therefore a value over paying the neighbor boy $30. So let’s look at whether representing yourself in a bankruptcy case is a “value.”

A represented debtor in a Chapter 7 bankruptcy must at minimum collect financial information; spend time with counsel during the initial interview and petition signing; complete credit counseling; attend the 341 meeting; and complete a course in financial management. A pro se (Latin meaning “for himself”) bankruptcy debtor must spend time on these things as well. However, the pro se debtor has a lot to learn including applicable exemption laws, and the bankruptcy rules and procedures. Setting that “learning time” aside for the moment, let’s look at some actual administrative costs the pro se debtor must perform “for himself:”

Time spent preparing the petition. Even the simplest petition will take the pro se debtor time to read the instructions and properly prepare the schedules. Your bankruptcy attorney uses sophisticated petition preparation software and is skilled at completing these forms. 6 hours.

Most pro se debtors drive to the bankruptcy court to personally file the bankruptcy case, and must pay the filing fee with cash, a cashier’s check, or money order. Your bankruptcy attorney has access to the court’s electronic filing system and can file your case within minutes from the office. Time 2 hours.

Extra time at the 341 meeting. The trustee will schedule extra time to spend on your case. Usually, pro se cases are set at the end of the trustee’s docket, so you will have to wait extra time for your examination. 30 minutes.

Communications with the trustee. The trustee generally requires income information, bank records, tax records, vehicle titles, recorded deeds, and other information. The bankruptcy attorney will provide these documents to the trustee while a pro se debtor must prepare and send them. 2 hours.

Communications with the bankruptcy court. The clerk’s office at the bankruptcy court can assist a pro se debtor on certain procedures, but is prohibited from giving legal advice. Pro se debtors generally spend a considerable amount of time on the phone with the clerk’s office. 2 hours.

The pro se debtor’s total so far for these simple administrative activities is 12.5 hours, or $187.50. Now let’s add the time spent researching the bankruptcy laws and processes; and the time spent on correcting or amending the bankruptcy pleadings. Additionally, the bankruptcy judge requires that any pro se debtor must appear personally in court to reaffirm a debt - an appearance is not required for represented debtors. This “extra” time can easily amount to another 40 hours!

The moral of this story is: the representation provided by your experienced bankruptcy attorney is not an expense, it is a savings! By having a licensed, experienced bankruptcy attorney handling your case you will get peace of mind and your case will be handled efficiently without surprises. The actual cash savings to the pro se debtor is small at best, while the truth is that many pro se cases experience problems that result in lost property or case dismissal. Don’t be “penny wise and pound foolish.” Hire qualified counsel and get the legal relief you need.

Protecting Your Lawsuit During Bankruptcy

Any claim that a debtor may have at the time a bankruptcy case is filed is considered an asset and must be disclosed to the bankruptcy court. This includes lawsuits that are currently pending in court or through an administrative process, and those that are not yet filed. Social Security Disability claims, Worker’s Compensation claims, unemployment claims, class action lawsuits, and personal injury lawsuits are all claims that must be disclosed to the bankruptcy court.

Keeping any money obtained from a legal claim (after settlement or adjudication) depends on several factors. For instance, if the bankruptcy case is a Chapter 13, the debtor does not lose any property, but must pay unsecured creditors an amount equal to the value of non-exempt property. Another factor is whether the claim or any money received from the claim is “property of the bankruptcy estate.” Some legal claims, like retroactive social security benefits, are protected by law and are excluded from the debtor’s bankruptcy case. Money from a legal claim may be protected using federal or state law exemptions. In some cases a claim is entirely exempt; in other cases a claim is protected only to a certain dollar amount.

The Bankruptcy Code states that the debtor must disclose “all legal or equitable interests” in property as of the date the bankruptcy case is filed. The debtor who fails to report an interest in a claim and later receives money is at risk of losing the entire payment. The bankruptcy judge and trustee will be very reluctant to permit a debtor to keep money that was hidden from the court, and the court is likely to disallow any claim of exemption. In some extreme cases, the trustee may complain that an omission is intentional and ask to revoke or deny a discharge on the basis of fraud!

The federal bankruptcy laws contain powerful protections for the honest debtor. It is extremely important to discuss any pending or potential claim with your bankruptcy attorney. Reporting any claim is the first step in protecting any money from turnover to creditors. Your attorney can also cooperate with any concurrent litigation to maximize your recovery.

Amana Couple Convicted of Bankruptcy Fraud in Pensacola, Florida

The Schuerers were convicted of Bankruptcy Fraud in Pensacola, Florida, and ordered to serve 30 months in in prison, pay a $25,000 fine and a $200 special assessment was imposed on each defendant. Also, the couple was ordered to pay the U.S. Trustee $394,984. So the moral of this story is do not "sell" your property to friends or family prior to filing bankruptcy.



CEDAR RAPIDS, Iowa - Gerald and Fay Schuerer of Amana were convicted of defrauding bankruptcy creditors out of more than $350,000 in property this week following a six-day trial in Pensacola, Fla.

Gerald Schuerer, 60, and Fay Schuerer, 58, were convicted of mail fraud and bankruptcy fraud on Monday, Nov., 8, following three hours of jury deliberations, according to the United States Attorney for the Northern District of Iowa.

The couple had formerly owned the Ox Yoke Innterstate in the Amana Colonies before running into financial trouble with a convenience store business that later closed. They had been indicted by a federal grand jury in Florida, where they had moved and filed their bankruptcy case to take advantage of the state’s more liberal bankruptcy filing laws.

Evidence presented at trial indicated the couple protected from creditors before their bankruptcy filing through sham sales to relatives with understandings that they would reacquire the assets after their bankruptcy protection was granted.

Among the assets were a vehicle, boats, jewelry, stocks and other investments worth about $380,000.

The Schuerers were released on bond pending sentencing by United States District Court Judge Casey Rogers at a date to be set later. The maximum possible sentence for the offenses would be 30 years in prison, a fine of $500,000, and six years supervised release.

The case was investigated by the Federal Bureau of Investigation with help from the Office of United States Bankruptcy Trustee in the northern districts of Iowa and Florida. It was prosecuted through efforts of the Bankruptcy Fraud Task Force of the Northern District of Iowa.

The federal government plans to seek restitution for the Schuerers’ creditors at sentencing, according to a prepared statement released by United States Attorney Stephanie Rose.

Debt Collection and Your Rights

Debt collectors can be ruthless. Persistent telephone calls at home and work, embarrassing letters in red envelopes, calls to friends and family, and even public posts to your Facebook account are all dirty tactics that debt collectors employ to harass you into paying. Fortunately, there are laws that protect you from unlawful creditor harassment.

The Fair Debt Collection Practices Act, or FDCPA, is a federal law that protects against abusive collection practices by third party collectors. Third party collectors include collection agencies and collection attorneys. The FDCPA does not apply to business debts or to original creditors. The FDCPA prohibits certain abusive practices including:

* Telephone calls before 8 a.m. or after 9 p.m. (your time);
* Requesting payment beyond what is actually owed;
* Using abusive, profane or obscene language;
* Threatening legal action which is not permitted by law (e.g. criminal action);
* Telephone calls at work after being instructed that your employer prohibits phone calls
from debt collectors;
* Contacting you directly after being instructed that you are represented by an attorney

Another federal protection is the Fair Credit Reporting Act (FCRA). The FCRA is designed to promote accuracy and ensure the privacy of the information used in consumer credit reports. The FCRA contains a dispute process for correcting inaccurate information placed on your credit report. More information about the Fair Debt Collection Practices Act and the Fair Credit Reporting Act can be found on the Federal Trade Commission’s Bureau of Consumer Protection website. The FTC is charged with enforcement of both acts.

Hiring a bankruptcy attorney provides immediate relief from creditor harassment under the FDCPA, and all collection action must cease the instant you file a bankruptcy case. This protection lasts the duration of your bankruptcy and is replaced with the bankruptcy discharge at the end of your case. A creditor who violates these bankruptcy prohibitions can face a contempt of court charge in the federal bankruptcy court.

Don’t let creditor harassment overwhelm your life. Take charge by consulting an experienced bankruptcy attorney about your debt and learn how the federal and state laws can protect your property, your income, and your peace of mind.

Rising Gas Prices Impact Debtors in Bankruptcy

Rising Gas Prices Impact Debtors in Bankruptcy

Debtors in bankruptcy are required to disclose all household income and expenses. While the debtor’s income is often relatively easy to determine through pay stubs and bank records, calculating expenses can be more elusive. When completing your bankruptcy schedules it is important to be realistic. Often changes in the economy can significantly affect your budget. The recent spike in gas prices has impacted the budgets of American families, and changes calculations within your bankruptcy case.

The U.S. Energy Information Administration recently determined that the average price for a gallon of regular unleaded gas in the United States is $3.567. That is a change of almost $.78 from the same time last year. Many economists believe that the national average will climb to over $4.00 per gallon. In fact, in some states (notably California) gas is already over the $4.00 mark.

It is important to account for this increase in your family’s budget. If you drive 12,000 miles per year and your car averages 25 miles per gallon, you use 480 gallons of gas per year, or 40 gallons per month. At the national average price of $3.567 per gallon, you spend almost $143 per month on gas. That is already $31 more per month/per vehicle than a year ago. If gas prices climb to $4.00 per gallon, the additional cost to a two income, two car family will be approximately $97 per month more than last year.

Higher gas prices have also contributed to an increase in food prices. According to the U.S Department of Agriculture, food prices for a family of four with school-aged children averaged $1184.50 during the month of January. That's $26.20 per month more than the same time last year.

While not every budget increase will necessitate a change in your bankruptcy schedules, any significant change that occurs after you sign your bankruptcy schedules should be brought to the attention of your bankruptcy attorney. While only a small percentage of cases will be affected by increases to a debtor's expenses, it is important to keep your attorney apprised of changes in your finances during your case.

Homeowners Have Options for Underwater Mortgages

Homeowners Have Options for Underwater Mortgages

If you are a homeowner who owes more money on your mortgage than your home is worth, there are a several options for saving your home. One of the latest is an $11 billion program through the Federal Housing Administration called "Short Refi." Under this program a non-FHA borrower may be able to obtain a new FHA-insured mortgage.

To qualify for the Short Refi program, the homeowner must be current on the monthly mortgage payments. The new primary FHA-backed loan cannot exceed 97.75 percent of the value of the property; and the second mortgage cannot exceed 15 percent of the property value. Additionally, the lender must agree to write off at least 10 percent of the loan’s principal balance.

Fannie Mae and Freddie Mac loans do not qualify for the Short Refi program. The New York Times reports that 23 lenders have signed on to the Short Refi program and are offering refinancing. Notable non-participants are Bank of America, Citibank, and JP Morgan Chase.

There are several programs available to save an underwater mortgage, so the homeowner is not stuck with a “one-size-fits-all” refinancing dilemma. One federal refinance program that has seen some recent success is the Home Affordable Refinance Program (HAMP). Refinancing a mortgage under HAMP during bankruptcy is specifically authorized and can save the homeowner significant money when combined with a bankruptcy discharge. Additionally, debtors in Chapter 13 bankruptcy may be able to strip off a second or third mortgage if the loan is entirely unsecured. For instance, if the value of the home is $200,000, and the first mortgage is $200,000 or more, then any additional mortgage or lien on the property would be entirely unsecured and could be stripped off during Chapter 13 bankruptcy.

If your home is underwater and you are struggling with debt, speak with an experience bankruptcy attorney and discuss your options. In many cases you can discharge your unsecured debt through bankruptcy and refinance or modify your underwater home loan to new, affordable terms. Get the facts about rescuing your underwater mortgage today.

Be Accurate About Your Bank Balance When Filing Bankruptcy

Be Accurate About Your Bank Balance When Filing Bankruptcy

During a Chapter 7 bankruptcy case, all of the property in the debtor’s “possession, custody, or control” is part of the bankruptcy estate. If there is estate property that is not exempt from collection, the bankruptcy trustee may require turn-over the property to pay creditors. It is therefore extremely important to accurately identify all of the debtor’s property and its status prior to filing a bankruptcy case.

One situation that can cause headaches in bankruptcy is misrepresenting the actual balance in a checking account on the day the bankruptcy is filed. If the debtor is unable to exempt the cash balance in a bank account, the trustee may require its turn-over, even if the cash is subsequently spent.

Delays in filing a case can sometimes lead to checking account issues. For instance, the debtor believes that the case was filed the day before payday, when actually it was filed on the debtor’s payday. The bankruptcy schedules report $100 in the bank account, when actually the amount is $1,000.

Negligence can also be a factor in bank account mishaps. One common mistake is reporting the checking ledger balance instead of the actual bank balance. The United States Supreme Court held in the case of Barnhill v. Johnson, 503 U.S. 393 (1992), that the transfer of funds occurs when the bank honors a check. Therefore, if the bank balance is $2,000 and $1,900 is written in outstanding checks that have not been honored by the bank, the full $2,000 is property of the estate.

Preventing the above problems is simply a combination of good bookkeeping and good communication. First obtain your actual bank balance, and account for any direct deposits, pay checks, and any outstanding checks. Next discuss the situation with your bankruptcy attorney. Be careful about writing checks just prior to filing bankruptcy. In some cases pre-filing financial transfers can cause additional issues in your bankruptcy. It may be prudent to delay your bankruptcy filing until certain checks clear or your paycheck has been spent on necessities.

Avoiding surprises and problems in your bankruptcy case takes cooperation between you and your attorney. Immediately inform your attorney if you have changes in your property, debts, income, or expenses after you have signed your bankruptcy petition.

Be Accurate About Your Bank Balance When Filing Bankruptcy

Be Accurate About Your Bank Balance When Filing Bankruptcy


During a Chapter 7 bankruptcy case, all of the property in the debtor’s “possession, custody, or control” is part of the bankruptcy estate. If there is estate property that is not exempt from collection, the bankruptcy trustee may require turn-over the property to pay creditors. It is therefore extremely important to accurately identify all of the debtor’s property and its status prior to filing a bankruptcy case.

One situation that can cause headaches in bankruptcy is misrepresenting the actual balance in a checking account on the day the bankruptcy is filed. If the debtor is unable to exempt the cash balance in a bank account, the trustee may require its turn-over, even if the cash is subsequently spent.

Delays in filing a case can sometimes lead to checking account issues. For instance, the debtor
believes that the case was filed the day before payday, when actually it was filed on the debtor’s
payday. The bankruptcy schedules report $100 in the bank account, when actually the amount is $1,000.

Negligence can also be a factor in bank account mishaps. One common mistake is reporting the
checking ledger balance instead of the actual bank balance. The United States Supreme Court
held in the case of Barnhill v. Johnson, 503 U.S. 393 (1992), that the transfer of funds occurs
when the bank honors a check. Therefore, if the bank balance is $2,000 and $1,900 is written
in outstanding checks that have not been honored by the bank, the full $2,000 is property of the
estate.

Preventing the above problems is simply a combination of good bookkeeping and good
communication. First obtain your actual bank balance, and account for any direct deposits, pay
checks, and any outstanding checks. Next discuss the situation with your bankruptcy attorney.
Be careful about writing checks just prior to filing bankruptcy. In some cases pre-filing financial
transfers can cause additional issues in your bankruptcy. It may be prudent to delay your
bankruptcy filing until certain checks clear or your paycheck has been spent on necessities.

Avoiding surprises and problems in your bankruptcy case takes cooperation between you and
your attorney. Immediately inform your attorney if you have changes in your property, debts,
income, or expenses after you have signed your bankruptcy petition.

How Chapter 7 Affects Sole Proprietors

Most businesses are legal entities separate from the individual owners. Microsoft, for instance, is not the same as Bill Gates. Corporations, LLCs and the like are recognized as operating independent from the business’s owners. When an incorporated business files bankruptcy, the owners are not in bankruptcy, and vice-versa.

On the other hand, when the business is a sole proprietor, the owner is the same as the business. The business is not a legal entity that is separate from the individual. In fact, the business is not recognized as existing apart from its owner. The business income, expenses, property, and debts all belong to the owner. Therefore, when a sole proprietor files bankruptcy, the business is also bankrupt.

The Chapter 7 trustee who administers your bankruptcy case is under a mandate to seize control and cease operations of your business. The main reason for this is that the business assets are considered personal assets and part of the bankruptcy estate. Fortunately, in most cases personal exemptions are able to protect tools and equipment used in the sole proprietor’s business.

Accounts receivable are also part of the bankruptcy estate, so it is important to provide accurate business records to assist your attorney before your bankruptcy is filed. The trustee will want to see all gross income received by the business, and all business expenses. Since this gross income is included in your personal gross income, business income can sometimes push the total family income over the qualifying ceiling for Chapter 7 bankruptcy. Additionally, business debt is considered personal debt, so it is generally included in the bankruptcy discharge.

Every sole proprietor bankruptcy case is different. For instance, in a case where the debtor runs a day care from her home, there may be little or no business inventory or assets. In bankruptcy terms, there are no business assets for the debtor’s estate. However, where the sole proprietor runs a restaurant, there may be significant assets for the bankruptcy estate. It is important for you to speak candidly with your attorney and discuss your sole proprietor business thoroughly. Your attorney can effectively advise you on the best future action including whether it is permissible to continue business operations, whether you should form a corporation or LLC, or taking some other action to best protect your interests. If you are dealing with a personal financial difficulty, speak with an experienced bankruptcy attorney before making any decisions regarding your sole proprietor business.

Discharging Family Debt in Bankruptcy

Consider the following example:

Tom and Becky Sawyer get a divorce. They have no children and Tom and Becky each have identical incomes (Tom is an aspiring riverboat captain and Becky owns a seamstress business). Tom and Becky are joint owners of a 2008 Pontiac GTO which they own outright, and they have $20,000 in joint credit card debt. Becky agrees to sign over the GTO to Tom in exchange for Tom paying the credit cards. The family court judge (Judge Thatcher, of course), orders that Tom will hold Becky harmless for any nonpayment on the credit cards. Later Tom is fired from his riverboat captain job (it wasn't his fault – honest!) and is unable to pay the credit cards. Poor Tom sold the GTO and is now considering bankruptcy to discharge his debts.

Tom and Becky's situation is fairly common and causes quite a bit of confusion in real life. First, Becky is still obligated to the credit card companies despite Judge Thatcher's decree. Briefly, this is because the credit card companies were not parties to Tom and Becky's divorce, so the legal relationship between Becky and the card companies did not change.

Second, Tom is able to discharge his debt to the card companies through either Chapter 7 or Chapter 13, but he cannot discharge Becky's obligation to pay this debt because Becky did not file bankruptcy.

Finally, while Tom can discharge his obligation to the credit card companies, there is a second obligation: Judge Thatcher's order that he hold Becky harmless if he fails to pay the credit card debt. When Tom does not pay the credit card companies, Becky can ask Judge Thatcher to enforce the hold harmless order against Tom.

Whether Tom can discharge the hold harmless order in bankruptcy depends on whether the debt and the hold harmless clause constitute a "Domestic Support Obligation" that is in the nature of “alimony, maintenance, and support.” A Domestic Support Obligation cannot be discharged, but the bankruptcy filing may stop collection actions such as wage garnishment, bank seizure, or even jail for contempt of court; and a Chapter 13 may provide time to repay support money owed to a spouse, former spouse, or child.

A debt not in the nature of “alimony, maintenance, and support” is commonly referred to as a "property settlement." If Tom's obligation to pay the credit card companies is a property settlement, then the hold harmless clause can be discharged at the end of a Chapter 13 bankruptcy, but cannot be discharged in Chapter 7.

Determining whether the debt is a "Domestic Support Obligation" or a "property settlement" depends on specific facts and requires the careful consideration of an experienced bankruptcy attorney. Call today for assistance and learn how the Federal Bankruptcy Code can help your debt problem.

Short Sales

A short sale is the sale of real estate for less than the balance owed on the property. Short sales are common in today's real estate market, where home prices have fallen and the home owner is no longer able to pay the mortgage loan. A short sale takes cooperation between the home owner and the lender to sell the property at a loss. Both parties must consent to the sale. A short sale can avoid a foreclosure, which can be mutually beneficial to the parties. The lender avoids the expense of a foreclosure and the home owner avoids the negative impact on personal credit.

Short sales were seldom used by homeowners prior to the mortgage crisis because a short sale results in a deficiency balance obligation to the homeowner. The home owner was sometimes sued for the difference between the amount owed on the home and the short sale price, or, more commonly was taxed by the IRS on the amount "forgiven" by the lender. Either way, a short sale created another heavy burden on the home owner.

In response to the mortgage crisis, the Mortgage Forgiveness Debt Relief Act was signed into law in 2007 which excludes from income a discharge of debt on a principle residence. Debt forgiven by a lender in connection with a foreclosure, refinance, or short sale in calendar years 2007 through 2012 is eligible for this relief. Up to $2 million is excluded ($1 million if married filing separately). This relief only applies to a principal residence, and does not include a second home, credit cards, or a car loan.

A forgiven debt is generally taxed as income to the tax payer, but that is not always the case. The most common exclusions of this tax are: (1) if the tax payer was insolvent immediately before the debt was forgiven; (2) if the debt was discharged in bankruptcy; or (3) if the debt is a qualified principal residence indebtedness until 2012.

If you are struggling with a home mortgage and need to walk away, consult with an experienced bankruptcy attorney and learn how the law can work for you. Your attorney can explain your options and together you can make the decisions for a better financial future.