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Bi-weekly does not equal semi-monthly: Why the difference matters so much

By Peter Bricks , a Cumming, Georgia bankruptcy attorney.

I recently was replaced another attorney in the middle of a Chapter 13 bankruptcy case in the Northern District of Georgia. My new client mentioned that she had trouble making the plan payments of her confirmed Chapter 13 plan, which were $560 per month.

This client had employer deduction order for her monthly trustee payments. This means the payments were essentially garnished out of her paycheck and mailed to her bankruptcy trustee, which is fairly typical of Chapter 13 plans.

After reviewing the deduction order, I noticed something odd. The deduction order called for the debtor to pay $280 per paycheck. Why was this wrong? The debtor’s employer pays her bi-weekly and not semi-monthly.

While debtors often use the term interchangeably, they mean vastly different things. Someone paid bi-weekly gets paid 13 times over 6 months (26 times in a year), whereas someone paid semi-monthly only gets paid 12 times over 6 months (24 times a year).

In reviewing the debtor’s account ledger, I realized the debtor had overpaid her trustee payments by over $1,000, because this mistake had been going on for over a year.

A similar problem I face is when reviewing people’s monthly budgets, they often tell me what they spend weekly and then multiply that amount by four to get a monthly figure. This is also incorrect, because there are 4.33 weeks in a month.

Math mistakes like this can lead to all sorts of problems, particularly incorrect figures on a means test. Additionally, it can cause great interference with a Chapter 13 trustee payment, because the debtor is going to struggle to make payments if the figures he is using are incorrect.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Atlanta, Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Where should you file bankruptcy if you are about to move states?

By Peter Bricks , an Atlanta bankruptcy attorney.

I sometimes get calls from debtors who are interested in filing bankruptcy and have either recently moved into town or are planning moving away. The first thing they need to decide is whether they should file bankruptcy in Atlanta or wherever they plan on moving next.

Bankruptcy venue is dictated by 11 USC 1408. That code section says “a case under title 11 may be commenced in the district court for the district—(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principle place of business, in the United States, or principal assets in the United States, of such person were located in any other district.

Therefore, the first thing we need to decide is whether the debtor is even eligible to file in his current location. He might have just moved into town several weeks ago and is only eligible to file in the city he just moved from. He also might be eligible to file in two cities because his principal assets might be a different place than his domicile.

Once it’s been established whether the debtor is eligible to file at the moment in his current location, he should determine whether to do so makes sense. Take the example of the debtor who wishes to file Chapter 13 and is moving away in two weeks. Does that debtor want to establish venue in a place he will no longer live and then have to return for the meeting of creditors, confirmation hearing and other miscellaneous court hearings that might take place over the course of the case?

On the other hand, maybe the debtor cannot wait to file because he needs to immediately stop a garnishment or repossession.

Conversely, the Chapter 7 debtor in the same position might be more open to filing in the city he is leaving because he is likely to only need to make one court appearance in his case.

The point is there are a variety of factors the debtor should consider if he is changing residences, and he needs to think it through with a competent attorney and pick the right court to file the case.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Atlanta, Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Is your state a recourse state? Why it’s important to know if you are facing foreclosure

By Peter Bricks , an Atlanta bankruptcy attorney.

The number one reason I consult with debtors about filing bankruptcy is due to underwater real estate. A lot of them have a home that previously had equity, but

does not currently.

In these scenarios, the client is worried about whether the bank will pursue a deficiency against him if he misses mortgage payments, and the bank does not agree to waive the deficiency through a short sale or a deed in lieu of foreclosure.

If you find yourself in that position, it is critical that you find out whether your state is a recourse or non-recourse state. What does this mean? It means you must learn whether the bank can pursue a deficiency balance after foreclosing. A full list of recourse states is available here; however, note that you need to check your state’s updated law to verify the information is still accurate.

To explain why this distinction is so important, consider these two scenarios. Let’s say two debtors who owe little to no unsecured debt, each have a home that is about $80,000 underwater and is facing foreclosure.

The debtor in a non-recourse state is possibly protected against the bank pursuing a deficiency and therefore will probably have no need for a bankruptcy to discharge a debt to the bank. However, the debtor in a recourse state can be pursued for a deficiency and thus might need or want to file bankruptcy to avoid this large debt.

Note that it is not as simple as knowing whether one’s home is located in a recourse state. There are nuances to consider and one should consult with a local attorney. Even in recourse states, the banks do not always pursue a deficiency for example. Georgia is a non-judicial foreclosure state, and the banks usually do not pursue deficiency judgments.

Also, even in a non-recourse state, that prohibition against pursuing a deficiency might very well apply only to the foreclosing bank. Therefore, if a second mortgage held a note as well, that bank can still pursue a deficiency. Also consider that even in a non-recourse state, the ban against collecting might only apply to purchase money loans. Therefore, if the debt originated from a refinance, the bank might still be able to collect against the debtor.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Woodstock, Cumming and Jonesboro, Georgia.

Yes, You can still own your house after you file Ch. 7

Yes, You can still own your house after you file Ch. 7

By Peter Bricks , an Atlanta bankruptcy attorney.

I occasionally get calls from my former clients who have filed a Chapter 7 bankruptcy in Atlanta , received a discharge, and seen their case closed, which begin with the comment “Now that I no longer own my house because my Chapter 7 is over …”

The client who makes that comment is almost always still living in the same home as when he filed Chapter 7 bankruptcy and intends to remain there for a good while. Prior to the filing of the case, I explained to him that he was not going to lose his home simply due to filing Chapter 7.

When the client asks this question, I always remind them that they still own their home, assuming the bank has not foreclosed. Title ownership is an asset. The debtor only loses the asset in Chapter 7 if the trustee liquidates it because the debtor has more equity than is allowable for his exemptions.

The mortgage associated with the home is a debt. The debtor gets rid of the debt in Chapter 7 by not reaffirming, but keeps the asset. Now it is critical to remember that while the debtor gets rid of the technical “debt” to the creditor, the creditor retains its lien on the home because the debtor cannot get rid of the lien in Chapter 7 bankruptcy (the 11th circuit currently allows debtors to get rid of underwater liens in Chapter 7, but is the only circuit to do so).

Therefore, in the majority of Chapter 7 cases, the debtor retains his ownership, gets rid of his debt obligation, and the creditor still has a lien on the property which exceeds the value of the home. For example, if the debtor owns a $150,000 home but the mortgage is for $180,000, the debtor will still be on title since the trustee could realize no equity, but the debtor’s title ownership could not be sold for profit because the creditor’s lien exceeds the value of the home.

Finally, it is important to note that to stay in the home and not be foreclosed, the debtor must continue to remain current with the creditor after filing Chapter 7, or else the creditor will exercise its lien rights that survive the bankruptcy discharge to foreclose on the home according to state law regardless of the fact that the “debt” no longer technically exists.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

Means Test: Impact of the 2013 payroll tax increase

Means test: Impact of the 2013 payroll tax increase

By Peter Bricks, an Atlanta bankruptcy attorney

While one could write a novel about all of the various intricacies of the means test in Chapter 7 or Chapter 13 bankruptcy, I’m going to narrowly focus this blog on the increase in the payroll tax, which took effect January 1, 2013.

The means test is used to determine whether someone is presumptively unable to qualify for a Chapter 7 discharge due to having too much disposable household income, as well as to at least partially determine how much disposable income the debtor has to pay unsecured creditors in Chapter 13.

While these figures are subject to potential reconfiguration and challenges due to change in circumstances, the numbers on paper are determined by considering the debtor’s gross income over the previous six months subtracted against various allowable deductions. As expected, one of those deductions is the amount the debtor pays in payroll tax.

When the payroll tax increased by 2% of the debtor’s overall salary on January 1, 2013 (up to a $113,700 cap (up from $110,100 in 2012), the debtor therefore began taking in less income, which in turn left less money for the debtor to repay creditors. A January 2013 means test reflected income from July-December 2012, and therefore did not accurately reflect the debtor’s new situation in regards to an increased payroll tax liability.

As we get further away from January 2013, this increase becomes less relevant in means test calculations, because each new month added to the test includes the new tax and replaces a month that does not. However, it will not be until July 1, 2013 where a test will no longer at least be partially skewed by this tax increase. Furthermore, it’s important to consider that those closest to the cap are impacted more than those making less.

Because a Chapter 7 does not include a repayment and simply comes down to qualification for discharge, this increase is arguably more important to Chapter 13 cases, because many debtors in active Chapter 13 bankruptcies have had their trustee payment based upon a lower tax base. As such, some of those changes in circumstance might even need post-confirmation modifications to address the fact the debtor now has less disposable income and might not be able to make plan payments anymore.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Woodstock, Dunwoody, Cumming and Jonesboro, Georgia.

Venue and Exemptions: Not the same thing in bankruptcy

Venue and Exemptions: Not the same thing in bankruptcy

By Peter Bricks, a Woodstock, Georgia bankruptcy attorney.

Debtors in Chapter 7 get a “fresh start, not a head start,” because they are allowed to “exempt” certain assets from creditors and their trustee. This means that debtors can keep certain assets. In a typical Chapter 7, the debtor keeps all his stuff.

What determines how much property the debtor can exempt? The debtor is allowed to exempt either under his state’s exemption statute or the federal exemption statute. Each state has chosen whether to opt out of the federal exemptions or not.

While the venue (i.e., the bankruptcy court in which the case is filed) usually matches the state exemptions the debtor uses, this is not always true. To establish venue to file a case, the debtor need only be residing in a state for the greater part of the 180 day period prior to filing (i.e., at least 91 days). The debtor can also file somewhere he does not live, provided the majority of his assets are in that state.

So does it really matter if the debtor’s venue does not match the debtor’s exemptions? Possibly not, as the debtor will be entitled to utilize some exemptions one way or the other. However, it’s important to note that some states have more generous exemptions compared to other states, as well compared to the federal exemptions. Although it might not matter in that particular debtor’s case, the debtor would most certainly rather file while using the highest possible exemptions.

A debtor cannot use his new state’s exemptions until he has resided there for at least two years. As such, the debtor who has been in a state for nearly two years and wants to file bankruptcy needs to know that state’s exemptions compared to the federal and/or alternate state’s exemptions. If the debtor has assets that would only be fully exempt in one of those set of exemptions, the debtor will either want to hurry up and file or wait to file, to utilize the larger exemptions.

Please note that some states will not let you use their exemptions if you no longer reside there. There is a good program called exemptionsexpress.com, which will tell you which exemptions you can use depending on which state you moved from and which state you now reside.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), and contributes regularly to Bankruptcyblog.org. He has Georgia offices in Dunwoody, Atlanta, Jonesboro, Cumming and Woodstock.

Trustee Motion to Dismiss in Chapter 13: How to Handle It

Trustee Motion to Dismiss in Chapter 13: How to Handle It

By Peter Bricks

In a lot of Chapter 13 cases I handle as an Atlanta bankruptcy attorney, my clients get served with a motion to dismiss their case by the trustee. My clients normally panic when they see the motion, but a lot of times the initial stress is unwarranted and the issue resolves itself.

A trustee usually files a motion to dismiss because the debtor is behind on plan payments, or there is something structurally wrong with the case. Although not always the case, dismissal motions related to technical defects will usually come pre-confirmation. That is because these defects are raised by the trustee right after the meeting of creditors and need to be corrected to get the case confirmed.

Therefore, it is less likely that a technical problem would occur post confirmation. That being said, these problems certainly do happen. Examples will vary be district, but can include- the debtor not turning over a post-petition tax refund or inheritance, a late filed creditor claim that alters the amount the debtor must repay in his plan, or undisclosed change in circumstances to the debtor’s income.

Should the debtor not be current in the plan payments, the debtor can expect a motion to dismiss soon thereafter. The timing will vary be district, but a Northern District of Georgia bankruptcy lawyer usually sees these after 2-3 missed trustee payments.

Not surprisingly, delinquent payment problems are solved by making payments. Therefore, if you get a motion to dismiss for lack of funding, immediately get with your attorney to negotiate a resolution with your trustee. A motion to dismiss is usually set for a hearing about 3-4 weeks after it is filed, so the debtor will get an opportunity to object and cure the problem.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Woodstock, Cumming and Jonesboro, Georgia.

What is an Adversary Proceeding in Bankruptcy Court?

By Peter Bricks, an Atlanta bankruptcy lawyer

An Adversary Proceeding in bankruptcy court is essentially a separate lawsuit within a bankruptcy court for the purpose of getting a declaratory judgment. It can be brought by a creditor or a debtor, and is not done by motion. Bankruptcy Rule 7001 governs adversary proceedings.

When an adversary proceeding is brought by a creditor, it is most likely going to be to object to an attempted discharge of a debt by the debtor. The creditor can either object to the total discharge of all debts by the debtor (11 USC 727) or just to the discharge of that creditor’s debt (11 USC 523).

An objection under 727 means the creditor is trying to get the debtor’s entire discharge denied. This would be a permanent bar for the debtor as to those debts. The creditor might also file an objection under 523, which means the creditor is trying to get a discharge denied as to its debt only. Credit card companies often bring these adversaries if the debtor rang up significant charges close to the filing date of the case. Additionally, if the debtor incurred a debt through fraud, a creditor might bring an adversary proceeding to determine the dischargeability of its debt.

The primary reason a debtor brings an adversary proceeding is to file a “lien strip” to eliminate an underwater second mortgage. However, this process will vary by district and many districts allow this to be done by motion.

Another reason a debtor might bring an adversary proceeding against a creditor is because the creditor has violated the debtor’s rights under the Automatic Stay of 11 USC 362, or perhaps even after the discharge order. The debtor therefore essentially becomes a Plaintiff against the creditor and seeks damages for the violation. The most typical example of this in my practice is a car lender who is aware the debtor is in bankruptcy and still repossesses the debtor’s vehicle without a bankruptcy court Order.

As an adversary proceeding is a separate lawsuit, it is assigned a separate case number and begins with the filing of a Complaint. The defendant party then has 30 days to respond or else risk a default judgment. In other words, if you are a debtor in bankruptcy, you should never ignore an adversary proceeding Complaint filed against you, even if you think it is frivolous.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

Venue and Bankruptcy: Which Court do you file your case?

By Peter Bricks, an Atlanta bankruptcy attorney.

As a primarily Northern District of Georgia bankruptcy attorney, I know based on what county my client resides whether their case will be filed in either the Atlanta, Newnan, Gainesville or Rome courthouse. If the debtor does not reside in any of the counties assigned to the Northern District of Georgia, the case will therefore most likely be filled in either the Middle District of Georgia or the Southern District of Georgia.

This is because venue in a bankruptcy venue in a bankruptcy case is dictated by 11 USC 1408. That code section says “a case under title 11 may be commenced in the district court for the district—(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principle place of business, in the United States, or principal assets in the United States, of such person were located in any other district;

Therefore, while the vast majority of the time venue is based on the debtor’s primary residence, it can also be selected due to the debtor’s assets. If the majority of the debtor’s assets are located elsewhere from where the debtor actually resides, then venue is appropriate in that location as well.

One important point to mention about basing venue on residence is that it applies to where the debtor lived for the greater part of 91 days of the 180 days preceding filing. While that is usually where the debtor currently resides, it is not necessarily so.

A debtor who has recently moved will need to decide whether to wait and file at the new place of residence or file now where venue will be perhaps be even in a different state from the debtor’s new residence. This is importantly, particularly as the debtor must make the meeting of creditors appearance at the court that has venue. And should it be a Chapter 13 case, the debtor is likely to need to appear in court on more than one occasion; therefore, making more problematic the decision to not hold off the filing to establish new venue.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

The initial bankruptcy consultation with the attorney: What should be discussed

I recently met with a potential client at my Cumming, Georgia bankruptcy lawyer office who made clear that he had previously discussed his situation with another attorney. This did not offend me in the least, as I recommend debtors visit multiple attorneys to discuss their bankruptcy options.

However, what intrigued me about our conversation was at the end when I mentioned to the client that the more appropriate chapter for him to file would be Chapter 7, he said the other attorney he met with recommended Chapter 13. I felt that he did not have sufficient income to support a Chapter 13 repayment plan, and knew he did not have assets he would likely lose in Chapter 7, so I recommended Chapter 7.

I asked the potential bankruptcy filer why the other attorney said Chapter 13, and he said because the other lawyer told him he could not keep everything in Chapter 7. After reviewing his list of assets, I knew that was not true and a Chapter 7 filing would most likely be a no distribution case, so I asked him what assets the other attorney felt like he would lose. He said he was not sure, as him and the other attorney did not go over his list of assets.

This made no sense. Either something was lost in translation in their conversation, the other attorney did not know enough about bankruptcy law or was perhaps purposefully steering him into the wrong chapter.

Whatever the reason, there simply is no way to determine whether someone belongs in Chapter 7 or 13, without knowing the following: (1) the debtors assets and equity position in those assets (2) income and ability to qualify under the means test (3) arrearage amounts on secured debts the debtor wishes to retain (i.e., home or car)(4) previous bankruptcy filings of the debtor (5) an accounting of the debtor’s secured, priority and unsecured debts.

Without going over all of those in full, the attorney cannot accurately tell the debtor: (1) whether a Chapter 7 discharge is likely (3) whether the debtor can retain all property in a Chapter 7 (3) what a Chapter 13 repayment plan would look like.

So if you meet with an attorney who does not go over all of those with you, it’s time to get a second opinion.

This article was written by Peter Bricks. He is an Atlanta bankruptcy attorney, with offices in Jonesboro and Cumming, Georgia.

Homeowners Association Dues in Bankruptcy

Peter Bricks, a Cumming, Georgia bankruptcy attorney, discusses the treatment of Homeowners Association Dues in bankruptcy.

Funds garnished before filing bankruptcy: Can you get them back?

This article is written by Peter Bricks, a Cumming, Georgia bankruptcy attorney

A garnished paycheck or bank account is one of the primary reasons leading debtors to call me at my office, because the filing of the bankruptcy case can stop the garnishment via the protection of the automatic stay. The debtor’s primary concern is stopping that garnishment and getting to take home a normal paycheck.

However, what debtors often don’t realize is that not only can they stop the ongoing garnishment by filing, but they actually might be able to recoup the amount of money garnished in the 90 days preceding filing. This is because the amount of money garnished in the 90 days before filing can be returned as a preference if it exceeds $600 under 11USC 547. If the amount of money is less than $600 then the debtor has no rights to the money under bankruptcy law, although he/she could have some rights to the funds under the debtor’s state law, depending on where the money is being held.

So the money should be returned as a preference, but to whom? The money should be repaid to the debtor’s bankruptcy estate, which means the debtor can only claim the funds if he/she has enough exemptions to keep it away from the debtor’s trustee. 11 USC 522(h) gives the debtor this power if the funds are exempt, and most Chapter 7 debtors can exempt these funds, as the majority of Chapter 7 cases have no assets to distribute to creditors.

 

 

Now all that being said, it still is incumbent on the creditor to return the money to the debtor or the trustee. Some creditors may not believe that the law requires them to do so, while other mom and pop store size creditors, might not believe the debtor will pursue this money if the creditor does not voluntarily return it. If the creditor does not relinquish the funds, the debtor can sue the creditor for turnover in an adversary proceeding and ask for damages as well.

I have numerous times utilized this provision as a Jonesboro, Georgia bankruptcy lawyer to get back funds for my clients that were taken from them just before they filed bankruptcy. In a few circumstances, the amount of money recovered actually exceeded the amount of attorney fees paid to file the case.

The point is, if you are being garnished, it is not always just about the future. It is also important to consider the past.