Federal Government Shutdown and Bankruptcy

You can’t go more than a few seconds and not hear something about the government shutdown on the radio or TV. So how is this going to effect bankruptcies?

Right now, it is having some effect. Both the IRS and the Department of Justice are involved in many bankruptcy cases. Both of their bankruptcy staffs have been reduced so they may need extra time to properly respond to bankruptcy cases.

The Federal Courts have announced that they have about 10 days of cash on hand and can stay open until those funds dry up. So right now, cases are being filed, hearings are being heard; business as usual. What will happen after the 10 days are up is anyone guess right now.

The “non-essential” Federal employees are in a more tenuous situation. They have no idea if they will receive any retro-active pay. This on top of the sequestration cuts may be the thing that pushes their finances over the edge.

USPS Employees, Free Pre-Bankruptcy Credit Counseling

The USPS isn’t the only one with financial problems, the cuts are tricking down to the lowest level mail carrier.

If you are a postal employee and a member of the American Postal Workers Union or the National Postal Mail Handlers Union, Money Management International offers fee pre-bankruptcy credit counseling as a union benefit.

So if you find yourself in a situation where you might need to file bankruptcy, contact Money Management International or call 866.279.7197 for credit counseling.

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.

Beanie Babies and the Housing Bubble

Remember Beanie Babies? They were a big thing back the the 90s. So big that people though they were an investment. A bubble formed in the market for Beanie Babies, ending with some people losing a lot of money. Take a look at these people who lost money on Beanie Babies and try mentally replacing “Beanie Babies” with “real estate”. There are many similarities in those bubbles and probably future bubbles.

How Does Bankruptcy Affect the Filling of Income Taxes?

This is a very common question, with a very easy answer: it doesn’t. That’s not the end of the story as two other issues can pop up depending on when the bankruptcy is filed, whether you get a refund, and whether you get a 1099 for debt forgiveness.

If you file your income taxes prior to the filing of a bankruptcy and (1) you are due a refund but (2) you have not yet received the refund, it’s important to make your lawyer aware of your right to receive the refund. In many instances, you can protect the refund and keep it. In some instances you risk losing it and it may make sense to engage in some more planning prior to the filing of the bankruptcy.

If you receive a 1099 for debt forgiveness after you file for bankruptcy, it’s important to speak with a competent CPA. You should not have to pay tax on the forgiven debt because it’s highly likely that you meet the IRS’ definition of insolvency. If that’s the case, there’s a form that a CPA could help you fill out that will cancel any tax owed on the debt.

Generally speaking, your bankruptcy filing should not have a direct impact on how you go about filing your taxes other than the two instances mentioned above. If you have concerns, you should mention to your tax preparer that you filed bankruptcy and you will almost certainly learn that there is no effect.

If you’re looking for relief from debt or assistance with Chapter 7 bankruptcy, we are here to help. We offer a free confidential, no obligation consultation to discuss your personal situation. Please call (713) 961-9477 for immediate assistance or visit our website here.

Gay Couples and Bankruptcy in Texas

It’s a fact that Texas does not recognize gay marriage. It’s also a fact that there are countless gay couples in Texas. I have no idea how many of those couples are struggling financially, but I know our office has represented a fair amount of gay couples. The purpose of this article is to remove any mystery related to gay couples in Texas and their bankruptcy rights.

Married Couples and Bankruptcy

We often get asked from one spouse in a married couple if both spouses have to file for bankruptcy. It’s a common myth (read the other bankruptcy myths here) that both spouses in a married couple are required to file even if only one spouse wants to file. The truth is that only one spouse is required to file bankruptcy. When we quote a fee, that fee is usually the same whether one or both spouses file. It usually makes sense for both spouses to file when they are jointly and severally liable for a significant portion of the debt. These issues of “who files” and joint and several liability directly relate to a gay couple’s bankruptcy rights.

Gay Couples and Household Income

Even though only one spouse in a Texas-recognized marriage is required to file a bankruptcy, the law requires that we analyze a married couple’s bankruptcy rights based on the entire household income, not just the income of the spouse that is filing. This can sometimes negatively impact the analysis we provide to people. For example, if it only makes sense for one spouse to file, because he or she owes most of the debt, we still have to consider the non-filing spouse’s income. If the person who hopes to file earns nothing, but the non-filing spouse earns $100,000 per year, we have to base our analysis on the family income of $100,000 per year. There are arguable exceptions to this but that’s the general rule.

This household income analysis is not the same for a gay couple. Imagine the scenario in the previous paragraph, where one spouse owes most of the debt and receives no income. Because Texas does not recognize a gay marriage, we are NOT required to include the non-filing partner’s income. We are only required to consider the non-filing partner’s regular contributions to household expenses. This can have a huge impact on our analysis and it’s usually quite beneficial to our client to only include regular contributions to household expenses as income.

Gay Couples and Joint and Several Liability

Gay couples are no different than heterosexual couples when it comes to incurring debt. They have credit cards and houses together, buy cars together, etc. We’ve seen countless situations where it makes sense for the couple to file because of joint and several liability. What does it mean to be jointly and severally liable? It means that each person who has agreed to pay the debt (e.g. they signed the credit card agreement or promissory note) is responsible for 100% of the debt. If any responsible party dies or successfully completes a bankruptcy, the remaining signers are still responsible for 100% of the debt.

How does this impact a gay couple? Since they are not legally married does it mean they cannot file bankruptcy? Not at all. If each partner is jointly and severally liable for most of the family debt, such that it would make sense for them to file bankruptcy as a couple if it was allowed, they can each file their own individual bankruptcy and get relief.

How Does It Work?

Helping a gay couple understand their bankruptcy rights is really no different than helping a heterosexual couple. We still need to know everything we possibly can about the family finances in terms of income, expenses, creditors, property, etc. We have to take an extra step of signing something called a “conflicts waiver”. If there is joint and several liability on a debt and a lawyer meets with both responsible partners, the potential exists that only one partner will file bankruptcy. Only the partner who filed the bankruptcy will be absolved of the liability. The partner who did not file would now be solely responsible and the argument could be made that the partner who filed bankruptcy harmed the non-filing partner. When this potential for harm exists, a lawyer is required to explain the possibility and it’s best to put it in writing and have each potential client sign an acknowledgement–that’s the conflicts waiver. This is almost never a big deal as most gay couples, like most heterosexual couples, are in alignment as to what to do about their debt issues.

Once the conflicts waiver is reviewed and signed, everything else is the same. If the couple determines that bankruptcy is in their best interest, they would be required to file two separate bankruptcies. At our firm, we usually lower the fee for each partner’s case to make the total fees more manageable. We still have to do the same amount of labor in each case because they are totally separate.

Summing up

All of the above boils down to a couple of simple ideas:
1. Gay couples can file bankruptcy, they just can’t file one bankruptcy together as a couple
2. If one partner in the gay couple is not liable for much of the debt, it probably does not make sense for that partner to file bankruptcy
3. If both partners are jointly and severally liable for most of the debt, it would likely make sense for each partner to file his or her own separate bankruptcy.

Adam Schachter is a board certified bankruptcy lawyer serving Houston Texas and surrounding areas since 1999. For a free, confidential, no obligation consultation to discuss your personal situation please call (713) 961-9477 for immediate assistance or use the form on our website.

Chapter 13 Hardship Discharge

In a Chapter 13 bankruptcy, you promise to pay creditors, via the Trustee, a certain amount of money in exchange for your discharge. But what happens if you can’t make all the plan payments?

Normally, your case would get dismissed if you don’t make all your plan payments. But §1328(b) allows what is called a hardship discharge.

To qualify for a hardship discharge, you must show three things. First, you must show that your inability to make the full plan payment is “due to circumstances for which the debtor should not justly be held accountable”. So things like disability, loss of a job, natural disaster, etc… should qualify you.

The second is “the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date”. In a nutshell, your creditors must have already received, via your plan payments, as much as they would have received in a chapter 7 liquidation.

Lastly “modification of the plan under section 1329 of this title is not practicable”. This can mean you are already at month 60 of a 60 month plan or you income is so low that you can’t afford any plan payments or other factors which make a plan modification unfeasible.

Since granting a hardship discharge is at the discretion of your Bankruptcy Judge, you should discuss this with your attorney to determine if it is appropriate and if the judge is likely to grant it.

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.

Can a credit card company challenge your bankruptcy?

When a client sits down with me to discuss a bankruptcy they often ask me the same question.  What are the odds that my bankruptcy will be successful?  Now, I do explain to them first the income limitations and tax filing and document production requirements needed to sucsusfully navigate a Chapter 7 or 13 case.  However, the only real reason a bankruptcy should fail other then for a failure to comply with some court order is if a Creditor challenges your ability to receive a discharge due to fraud or hiding of an asset.

This type of challenge by a Creditor is called an adversary proceeding under Title 11, Sections 727 and 523.  They can file a formal complaint with the bankruptcy court to ask that your debt to them not be discharged, or that even your entire case be dismissed for filing in bad faith or by committing fraud.

The reality is that this type of challenge almost never happens in a simple Chapter 7 case, as the cost is very high and the standard of proof is equally daunting for the Creditor.  More specifically, the creditor must be able to demonstrate with specificity exactly how you committed fraud, or that you are hiding an asset and not disclosing it to the bankruptcy court.  This also includes false information you provided your creditors in order to obtain a loan or line of credit.  For example, you make $15,000 a year, but misrepresent your income to your lender and inform them you make $90,000 a year to get a higher line of credit.

The bottom line is that as long as you are truthful in your filing and disclose all of your financial information, including all assets you have and all creditors you owe money to, including family and friends, you should not have a problem with your discharge being challenged.   This includes listing any real estate you own or have a right to, as well as any claims you can bring against another person or entity to collect money.  However, if your discharge is ever challenged you need to take it seriously and consult with your attorney right away.

The foregoing article was for informational purposes only and is not intended to be legal advice or create any attorney client relationship with the Phillips Law Offices LLC.

Sinbad’s Bankruptcy or Why Consumer Debt vs. Business Debt is Important

As some of you may know by now, Comedian Sinbad recently filed chapter 7 bankruptcy. If you look at his bankruptcy schedules, you might wonder how a person making $16k per month file a chapter 7 bankruptcy.

On the first page of your bankruptcy petition, it asks if your debts are “primarily consumer debts” or “primarily business debts”. For this question, primarily means more than 50%.

If you can demonstrate that your debts are “primarily business debts”, things get easier in your chapter 7 bankruptcy. First off, you don’t need to complete Form 22A aka the Means Test. It also makes it very difficult for a party to dismiss your case for making too much money. Sinbad makes decent money and has multiple car leases that might be considered excessive, but that alone won’t be enough to sustain a 707a dismissal.

Why is my loan modification taking so long?

For many homeowners and their attorneys (including me), we have been playing the loan modification document game with the mortgage company for 9, 12, 18 months without an affirmative approval or denial.

It is very important if you are going to pursue a loan modification that you let your bankruptcy attorney know and keep them involved in the process, especially if you are in a Chapter 13 because this modification will need to be approved by the Court. In addition, please keep copies of all documents you send and followup with your point of contact every seven to ten days.

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.

Can I Discharge a Personal Injury Judgment in Bankruptcy?

By John Hilla, Michigan Bankruptcy Attorney

On Purpose or While Intoxicated—Or Neither?

A personal injury judgment is as dischargeable as any other unsecured debt, such as credit card or medical debt, so long as the judgment against you wasn’t for an “intentional tort” or for death or personal injury caused by your intoxication.

That is, if the judgment is based in an allegation of mere negligence, as is commonly the case with automobile, slip-and-fall, dog-bite, and other typical personal injury judgments, the judgment will be able to be fully discharged in either a Chapter 7 or Chapter 13 bankruptcy.

Non-Dischargeability for Intentional Torts

So what is an “intentional tort?” A tort is the name of an action one person may take which may allow another person some level of legal remedy against them under civil law. It is the part of the US legal system from which nearly all legal actions which are not criminal claims or breach of contract claims arise. The commission of a tort by one person against you would be the basis for a lawsuit you might file against them in civil court for which you might claim money or other damages as a remedy.

All personal injury lawsuits are lawsuits based upon the commission of a tort, or tortious act. The first question with regard to dischargeability in bankruptcy of a judgment received after the filing of a personal injury lawsuit is, “Was this an intentional tort?

An intentional tort is an act you committed on purpose, not by accident.

The vast majority of personal injury lawsuits are based on negligence or other non-intentional torts. You didn’t mean to let your dog get out of the yard and bite that guy, but you didn’t adequately lock your gate or post any warning signs. You were negligent in keeping a dog that might be prone to biting somebody … You didn’t mean to drive your car into that lady’s swimming pool, where she just 523to be floating in an inner tube. You were negligent in the operation of your vehicle.

Those sorts of negligent, non-intentional torts are dischargeable in bankruptcy.

An intentional tort is something you intended to do to someone else, actually did, and which caused damage: assault, battery, false imprisonment, and others. If you punch somebody in the face, and they end up with their jaw wired shut for a year, destroying their up-and-coming career as a nose model for sinus medication advertisements, you will be the proud owner of a judgment for an intentional tort if they sue you and win.

That judgment will not be dischargeable in bankruptcy.

Non-Dischargeability for Death or Injury Arising from Intoxication

Additionally, a personal injury judgment for injury or death which occurred because you were intoxicated from the use of alcohol or some other drug will also not be dischargeable in bankruptcy, regardless of whether you intended to be drunk or intended to cause damage while drunk or intoxicated.

This is because Section 523(a)(9) of the US Bankruptcy Code (the Federal statute governing the bankruptcy process in the US) says this is the case. This Section of the Code makes it clear that a debt originating from “death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance” is not dischargeable.

Chapter 13 Bankruptcy Can Help Even if the Debt Is Non-Dischargeable

Even if your personal injury judgment is not dischargeable in bankruptcy, you can still receive assistance from the bankruptcy process in dealing with it. A Chapter 13 “payment plan” or “reorganization” bankruptcy will allow you to repay the debt in full at 0% interest over 3-5 years.

Chapter 13 bankruptcy is, essentially, a payment plan in which you repay to your creditors what you can afford to repay over 36-60 months, after your necessary household expenses are taken into account. Debts that are dischargeable, such as credit card debt, receive whatever you are able to pay into the plan over that time-period, and then the unpaid balance is totally discharged just as it would be in a Chapter 7 bankruptcy.

Non-dischargeable debts must be paid 100% of what the creditors holding those debts are owed, in contrast. Thus, while your credit card creditors may only be paid 0.5% of what you owe them by the end of the plan, a non-dischargeable personal injury creditor will be paid 100% of what you owe—and in priority over the dischargeable creditors.

A Chapter 13 can be of great assistance in forcing even a creditor holding a non-dischargeable claim to accept a reasonable monthly payment that still allows you to keep food on your table.

Can You Discharge a Personal Injury Judgment in Bankruptcy? The Bottom-Line

The bottom-line is that, if you are being sued for a personal injury, particularly if the suit is for an amount of money above your insurance limits or if you had no insurance if there is an auto or homeowners insurance claim involved, you should contact an experienced bankruptcy attorney immediately to explore your options.

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.

Independent Foreclosure Review Payments

The Independent Foreclosure Review’s individual review of foreclosure cases is over. The settling parties have decided the one by one review process was too cumbersome, so they will just to hand out settlement money directly to those effected by foreclosure.

If you had a mortgage in foreclosure in 2009-2010 with Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, or Wells Fargo, you may have received a notice form Rust Consulting about pending payment as part of the Independent Foreclosure Review. Don’t worry its not a scam, the checks are valid. Amounts vary from $300 into the 5 figure range.

If you are planning on filing a bankruptcy, tell your attorney about any notice you receive regarding the Independent Foreclosure Review payment or Rust Consulting. We can help you with exemption planning to keep the Independent Foreclosure Review payments away from creditors.

If you have already filed bankruptcy and receive a Independent Foreclosure Review payments, it becomes trickier. Simplest thing to do is to talk to your bankruptcy attorney first before cashing the check. Depending on your state, you may have enough exemption to exempt the Independent Foreclosure Review payment. There are some legal arguments to be made that the Independent Foreclosure Review payment is not property of the estate as it arose post-petition. Or the payment might just be too small for your bankruptcy trustee to care. Again, this is where your bankruptcy attorney’s knowledge of local trustees and practice will be invaluable.