In re Clark and Inherited IRAs

In a recent US Supreme Court decision, the Justices took a look at the issue of is an inherited IRA exempt under Federal exemptions (522(b)(3)(C).

In bankruptcy, pretty much all retirement plans recognized by the IRS are protected from being used by the Trustee to pay a Debtor’s creditors. So if you had $200k in your 401k, the Bankruptcy Court couldn’t force you to use those funds to pay creditors. Congress felt that retirement savings were more important that paying creditors.

In the In re Clark case, Ruth Heffron, who was the original IRA owner, died and her IRA was inherited by her daughter. The daughter ended up filing bankruptcy and the Trustee wanted to use the money in the inherited IRA to pay creditors. The Supreme Court ended up siding with the trustee.

But not all is lost. While the inherited IRAs may not be exempt under Federal exemptions, it may still be exempt under your state exemptions. So if you are the recipient of an inherited IRA and you are looking at filing bankruptcy, you need to make sure your attorney is up to date because you could be risking a lot of money if they aren’t

Independent Foreclosure Review Payments and my discharged Bankruptcy

For many of our clients, they have now received their checks from the Office of the Comptroller of Currency from the Independent Foreclosure Review but now they are asking, do I need to call my attorney? The general answer is yes because if you received your discharge in the last 18 months, the check is actually an asset from your case HOWEVER the majority of Chapter 7 Trustees and some chapter 13 Trustees have already notified debtor’s attorneys of their intention to administer the asset only if it exceeds a very high dollar amount.

Please call your attorney for more information and for the vast majority of those who received checks, you will get to keep them without any issue or worry.

Homestead and Mobile Home Exemptions

In a Missouri bankruptcy proceeding, there is a homestead exemption and a mobile home exemption to exempt and protect equity in a debtor’s home or mobile home. A person’s homestead, according to Mo. Rev. Stat. 513.475.1, consists ” of a dwelling house and appurtenances, and the land used in connection therewith, not exceeding the value of fifteen thousand dollars, which is or shall be used by such person as a homestead, shall, together with the rents, issues and products thereof, be exempt from attachment and execution.” A debtor can exempt $15,000 equity in their home only if they own the home and it is their primary residence where they reside.

The property must not be a person’s rental property or second home if they wish to exempt any equity under the homestead exemption in Missouri. If two people are filing bankruptcy together, this exemption does not double.

Mo. Rev. Stat. 513.430.1(6) exempts, “Any mobile home used as the principal residence but not on or attached to real property in which the debtor has a fee interest, not to exceed five thousand dollars in value.” This means that a debtor can exempt equity in their mobile home up to $5,000 as long as it is their place of residence.

Wage Order in a Chapter 13 Bankruptcy

What is a wage order and what are the benefits?

A wage order in a Chapter 13 is where a portion of your Chapter 13 plan payment is automatically deducted from your paycheck by your employer. Your employer then sends the money directly to the trustee.

If you are paid bi-weekly then the monthly payment will be prorated. For example, if your Chapter 13 plan payment is $300 then $138.46 would be taken out of each paycheck.

Benefits to wage order:

· Presumed current if less than 10 days late

· No paying entire payment out of one paycheck

· Payments guaranteed to be made (so long as your employer is following the order)

· You are not tempted to spend the money elsewhere

· Allows for an overall successful completion of a Chapter 13 plan

In Illinois, wage orders are required where the Debtor is employed. In Missouri, while it is not required, it is strongly recommended as is ensures payments will be made to the trustee on a regular basis.

What are your payment options if you do not have a wage order?

Payments can be made in the form of a cashier’s check or money order and mailed to the trustee. You can also set up for an official bank check to be sent on a monthly basis directly to the trustee. They will NOT however accept a personal check from you.

To avoid incurring the fees of a money order on a monthly basis for your entire Chapter 13, talk to your attorney about setting up a wage order for you.

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.