Tag Archives: bankruptcy

Bankruptcy Filings Fall for Second Year in a Row

BankruptcyPetitioniStockPhotoAccording to the recently released 2012 Report of Statistics Required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, consumers filed a total of 1.1 million bankruptcies in 2012. This is a whopping 14% decrease from the number of consumer cases filed in 2011.  And 2011 filings were down from 2010 as well — by 11%.

Another trend that continued from 2011 to 2012 — of the total number of consumer bankruptcies filed, a slightly smaller percentage were Chapter 7 cases as compared to the previous year. Specifically, in 2010 71% of the consumer bankruptcies filed were Chapter 7 cases, in 2011 that percentage decreased to 70%, and in 2012 it further decreased to 69%.  The percentage of cases filed that were Chapter 13s correspondingly increased — from 30% in 2011 to 31% in 2012.

Other interesting statistics:

  • In 2012, the average time it took to complete a Chapter 7 case, from start to finish, was 205 days (or about 7 to 8 months). This is much longer than the “about three months” figure often bandied about. Of course, how long a case lasts depends on the jurisdiction and the particulars of the case.  For example, a case where a creditor files a complaint to determine dischargeability or where the trustee must sell property will take longer than a no-asset case in which no motions are filed.
  • In 2012, 30% of Chapter 13 filers had filed for bankruptcy within the previous eight years.

You can read the 2012 BACPA Report here.

Do I Have to Report the Amount of Debt Discharged in Bankruptcy on My Tax Return?

Tax Return 1040ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions. 

Hi Leon,

I filed Chapter 7 bankruptcy earlier this year and got a discharge. Our bookkeeper says he needs to know the total amounts discharged for our 2013 tax return. My lawyer says he doesn’t know and I’ll have to pay more fees if I want him to try and find out. I didn’t see it on the discharge notice from the courts. I am going crazy trying to find the number.

Roger

Dear Roger,

You’re an early bird. This is a question I normally don’t see until tax season. I am sorry this is driving you crazy.

First, I’ll explain for you (and your lawyer) why you won’t find anything that lists the amount of money you discharged. Next, I’ll explain for you (and your lawyer and bookkeeper) why you don’t need to know the discharge amount for tax purposes.

Bankruptcy Doesn’t Discharge Specific Dollar Amounts

The bankruptcy court didn’t make a determination on the amount of any particular debt that you discharged. That’s why you can’t find the number anywhere. There are a number of reasons why bankruptcy law works this way.

There’s no point in figuring out exact amounts. Suppose you had an ongoing dispute over an amount that you owe to a bank – you say it’s $100 and the bank says it’s $150. If the debt is dischargeable, it doesn’t matter who is right. You don’t have to pay it, so why should the court figure out the exact amount?

Determining exact dollar figures would be costly and time-consuming. If the discharge did apply only to a specific dollar amount, then the court would have to determine that amount. This would require a court trial or some other time-consuming procedure to determine how much you owe for every debt that you have.

The amount you owe changes constantly due to interest. Most of the debts you discharged probably accrued interest during your bankruptcy case. Because of interest piling up every day, the amount you owe constantly changes. This means that even if there was no dispute over the amount you owed, you could almost never list the correct amount on your bankruptcy papers.

It’s much easier if the bankruptcy discharge simply eliminates an entire debt. So that is what the law does.

You Don’t Need Discharge Amounts for Your Tax Return

Luckily, you don’t need to know the amount of your discharged debt for tax reporting purposes. The amount of debt you have discharged in bankruptcy does not get taxed nor is it reportable as income. The figure does not go on your 1040 tax form. In fact, even if you wanted to put it on your form, there’s no place for it.

You can stop going crazy.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Can I Keep “Cash for Keys” Money I Receive After My Bankruptcy Is Over?

Cash for KeysASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions. 

Dear Leon, 

My husband and I just got a Chapter 7 discharge. We were previously in foreclosure and walked away from our home.  

Before we left, our mortgage lender offered us a series of payments payable in two week increments if we moved out voluntarily. The longer we stayed, the less we would get. We did a final walk through with the bank representative (we were supposed to leave the house in “broom clean” condition) and then he handed us the final check. The total amount the lender paid us was $8,310. 

Here’s my question: Can we keep this money or do we have to give it to the bankruptcy court? 

Sincerely, 

Crystal

Dear Crystal,

I have great news for you. You can keep the money you received from the lender’s “cash for keys” deal and don’t have to report it to the bankruptcy trustee, if the following are both true:

  • your house was correctly listed in your bankruptcy case, and
  • the court made an order “closing” your bankruptcy case.

Cash for Keys

The deal the lender offered to you is referred to as “cash for keys.” In a cash for keys deal, the lender offers money to induce you to voluntarily leave the property. Cash for keys deals are common in foreclosures, evictions, and deeds in lieu of foreclosure.

In a typical cash for keys deal, the lender sets a deadline for you to be out. You don’t get the money until you vacate. “Broom clean” means you have tidied up the place, didn’t damage anything, and didn’t leave a pile of junk behind. There is typically a final inspection where you hand in the keys and the lender hands you a check.

Assets in Your Possession When Your Bankruptcy Case Closes Are Yours to Keep

The filing of a bankruptcy case creates an estate composed of everything you own. You can exempt certain assets from the bankruptcy estate – if assets are exempt you can keep them. After you get a bankruptcy discharge the court normally issues an order closing your case. The law says that upon closing the case, all assets still in your possession that you listed in the bankruptcy (whether exempt or not), will revert back to you.

If you correctly listed your home in the bankruptcy and the court issued and order closing your case, then you had every right to enter into the cash for keys agreement. The resulting money is yours to keep and you don’t have to report it to the bankruptcy trustee.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

What to Do If You Can’t Open a Checking Account After Bankruptcy

Bank check

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed bankruptcy and I included money that I owed in bank fees and overdrafts on my checking account. The bank closed my account. My bankruptcy was granted. Now I can’t get a new checking account. Every bank I go to turns me down, saying I am listed on something called checksystems. 

How can they do that when my bankruptcy was granted? 

Thank you, 

Cassandra 

Dear Cassandra,

I’ll explain what’s happening. ChexSystems is a consumer reporting agency, just like Transunion, Equifax, and other credit reporting agencies. According to its website, ChexSystems specializes in providing banks with credit reports about people whose checking accounts are overdrawn and closed. That’s why it has a report on you.

You are entitled to obtain a free copy of your report. If you feel there is anything on the report that is less than accurate, you can dispute it. (To learn how to get your report and how to dispute inaccurate information, visit Nolo’s Credit Repair area.)

But for now, you want to open a checking account. I have a suggestion that might help. Go to a small bank or credit union and open a savings account that has debit card privileges. Your debit card will work just the same as a checking account. In fact, very few people today bother to write paper checks. Most people are using plastic to pay for everything. (But use caution when using the debit card. See Nolo’s article on Debit Cards for tips and warnings.)

Sincerely,

Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Can I Get Rid of a Title Loan Lien on My Truck in Bankruptcy?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

“If you will redeem it, redeem it. But if you will not, tell me…”

Ruth 4:3-10

Dear Leon, 

A few years ago I took out a title loan on my truck. I am planning on filing for bankruptcy but need to keep my truck for work – I am a paint contractor. 

My truck is worth much less than the blue book price because, although it’s in great mechanical condition, it’s covered with scrapes and paint splatters. 

Can I redeem my truck in bankruptcy to get rid of the title loan? 

Thanks, 

Jerry 

Dear Jerry,

Unfortunately, you won’t be able to redeem your truck in bankruptcy. But you have a another option for getting rid of the lien — “avoiding” the lien.  I’ll explain what redemption is and why you can’t use it, and what avoiding a lien is and why this might work for you.

What Is Redemption in Bankruptcy?

In order to redeem a vehicle in bankruptcy, you pay the car title lender the current market value of the vehicle. If the lender rejects your redemption offer, you can file a motion asking the court to determine the current value or your automobile and grant an order requiring the lender to accept that amount of money.  (To learn more, see Keeping Your Car in Chapter 7 Bankruptcy Through Redemption.)

But there are two big catches to redemption law that you won’t like.

  • You can only redeem with a lump sum payment; you can’t do it installments.
  • You can only redeem an item that is intended primarily for personal, family, or household use. A truck used primarily for work does not qualify.

Because of the second catch, you can’t use redemption to get rid of the truck lien. But here’s the good news – you have another option.

Avoiding the Truck Title Lien

You may be able to “avoid” the lien held by the title loan lender. If your case is successful, you get to keep the truck and you won’t have to pay anything.

In bankruptcy, you may be able to avoid (get rid of) a nonpossessory, nonpurchase money lien on tools of your trade, to the extent that the lien impairs an exemption that you are otherwise entitled to claim or if the trustee abandons the tool (in this case, your truck).

Below I’ll explain what all of these terms mean. (For a full explanation of avoiding liens in bankruptcy, see Avoiding Nonpossessory,Nonpurchase Money Liens in Bankruptcy.)

Bankruptcy Exemptions

Federal and state laws list certain items of property that are “exempt” or safe from being taken away from you by the bankruptcy trustee. Your work truck is probably covered by one or more such exemptions. (Learn more in Nolo’s Bankruptcy Exemptions topic area.)

Abandonment

Even if your truck or other asset is not exempt, the bankruptcy trustee may choose to abandon an asset if it’s not worthwhile to sell it. For example, if your truck was 20 years old but not exempt, the cost to the trustee of taking it, storing it, and selling it would probably be more expensive than what the trustee could get from selling it. In this case, the trustee would abandon the truck.

(To learn more how this works, see Nolo’s article Will the Trustee Abandon my Car?)

Nonpossessory Lien

A nonpossessory lien means that the borrower retains possession of the collateral. (An example of the opposite or a possessory lien, is an item on pawn — the pawn broker holds the item throughout the term of the loan.)

Nonpurchase Money Lien

A nonpurchase money lien is one where the money you borrowed was not used to buy the item. This happens when you already own the item (in your case, your truck), and then you use the item as collateral to get a loan.

Putting the Pieces Together

So let’s put this all together. Ask yourself these questions:

  • Is your truck a tool of your trade, not used primarily for personal, family or household use?
  • Does the state where you live allow you to exempt the current market value of your truck? (For articles on car exemption law in each of the 50 states, visit Nolo’s The Motor Vehicle Exemption in Bankruptcy topic page.)
  • Under the title loan agreement, do you retain possession of the truck?
  • Did you already own the truck when you got the loan (that is, you did not obtain the loan in order to buy the truck)?

If the answer to all of the above questions is yes, you can remove the title loan from your truck in your bankruptcy case. Assuming that you are granted a full bankruptcy discharge, you will be able to nullify the title lien and you will not be required to repay the truck loan.

So tell me, you will not redeem?

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

 

Should Bankruptcy Cause a Guilt Trip?

Sheep dog covering her eyes with her pawASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I filed for bankruptcy a year ago. I felt badly about filing, but after paying my bills every month I had $10 left to last until the next month. Financially, I am now better off. Can I pay my old creditors back in order to get credit? I know it’s not right to run out on creditors. 

Carol

Dear Carol,

I’m really glad you’re now better off.

But your old credit is gone. Paying the old creditors does not make it come back. However, you can take steps to rebuild your credit so that you can get new credit or loans in the future. For tips, see Nolo’s Rebuilding and Improving Credit topic page.

Bankruptcy ≠ Running Out on Creditors

I’d like to clear up something else. By filing for bankruptcy, you didn’t run out on your creditors. In your bankruptcy, you subjected all of your assets to administration by the court. If the trustee found anything of worth, he or she would have sold it to pay your debts.

If you had engaged in financial wrongdoing, the court would not have granted you a discharged. And in giving you the discharge, the court also determined that you could not afford to pay anything and maintain a very modest standard of living. The privilege of a bankruptcy discharge is reserved for people like you who are honest but unfortunate.

I wonder if the CEO of General Motors feels bad about the millions of shareholders, bond holders, and creditors who didn’t get paid those billions of dollars owed in the GM bankruptcy. I certainly hope so, but I doubt it.

Keep doing well, and stop looking back.

— Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

ind Leon on Google+

If I File Bankruptcy Can I Get Rid of a Car Accident Judgment and Get My License Back?

car crash and dollar sign istockASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

A few years ago I was in a car accident. I didn’t think it was my fault, but I didn’t have insurance. The other driver’s insurance company sued me. I didn’t go to court, so they got a judgment against me. Then, the DMV suspended my driver’s license because I had an unpaid accident judgment. My employer just received a wage garnishment notice for the judgment. I barely make ends meet — I have other bills to pay and I can’t afford this. 

Was it legal for the insurance company to sue me? Can I stop the wage garnishment? Can I ever get another driver’s license? The judgment is for way more money than I can ever repay. 

I feel like I want to quit my job and go live in a cave. 

Sincerely, 

Mike

Dear Mike,

The other driver’s insurance company was entitled to sue you for the damages they paid caused by your negligence. It no longer matters who was at fault. You lost the lawsuit by default because you didn’t fight it.

If you barely make ends meet, then you should consult a bankruptcy lawyer.

The filing of a bankruptcy case will immediately stop the wage garnishment. The judgment will be discharged in bankruptcy if the accident did not involve you being voluntarily intoxicated. What’s more, if the judgment is discharged in bankruptcy you can get your driver’s license back.

I hope your cave has WiFi so you can read this.

-Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

 

 

Bankruptcy Filers: Don’t Strike Out On an Ethical Fast Ball

baseball umpire istockASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

I need to file bankruptcy but I have a baseball card collection that I don’t want to lose. I started collecting as a kid and have added cards over the years. My baseball cards have enormous sentimental value to me. 

I have seen two different lawyers and both said my collection is valuable enough that the bankruptcy trustee would likely sell it if I filed for bankruptcy. I need to use the bankruptcy exemptions available to me to protect other assets. 

What if I go to another lawyer who doesn’t know about my collection? If I don’t list my baseball cards on my bankruptcy schedules, realistically how is anyone going to know I have them?  

Steve 

Dear Steve,

You would not be asking this if you didn’t already know you are legally required to list all assets on your bankruptcy paperwork. And that includes your baseball collection. The deliberate omission of assets from your bankruptcy schedules constitutes the crime of perjury. It also falls under a separate group of serious felonies known as a bankruptcy crimes. If caught, those penalties will add up to many years in the slammer. (To learn more, see Nolo’s article Filing Bankruptcy? Disclose Everything. Hide Nothing.)

It sounds to me like you are ready to step off the curb and commit these crimes. But I sense you just want a “wink, wink, nod, nod” from a lawyer as reassurance.

(As an aside, I occasionally have a prospective client who is faced with your dilemma, and, after disclosing a certain asset, then says, “Just forget I told you that.”  But it’s not that easy. A lawyer is not allowed to conveniently “forget”  and it is illegal for a lawyer to permit a client to lie. It can result in disbarment of the lawyer.)

Let’s plumb the bottom of your question. It’s not a lawyer’s job to prove how you might get caught. But, in the interest of keeping you from doing something really stupid, I will take a swing at bat, play your game, and try to show how you might get caught.

Over the years, I have trained myself to think like a bankruptcy trustee. Trustees sometimes ask for credit card records and bank statements. Often, they are just fishing around for something that doesn’t look right. Something out of the ordinary. Something out of place. Trustees love to sleuth things out.

The trustee might do that in your case. If so, she may see that you bought baseball cards with a credit card or paid with a check. Perhaps there’s a pattern of such purchases.

Or maybe someone will rat you out. A bitter ex wife or a former business associate with a grudge against you. You would be very surprised to find out how often that happens.

You’re obviously a baseball fan. Look to recent news in Major League Baseball as an example of getting ratted out. Alex Rodriguez and all the major league baseball players who just got suspended (for using testosterone and growth hormone supplied a company) by the Baseball Commissioner were caught because a disgruntled former partner in the “vitamin and supplements” business blew the whistle.

If you want more examples of people thinking they could get away with crimes, but didn’t, try visiting a prison.

Bankruptcy relief comes with a moral cost. You must be ethically prepared to surrender assets that are not exempt. Is that too high a price for you to pay for debt relief? If it is, keep your baseball cards and don’t file bankruptcy. If you file and lie about assets, the alternative may be playing softball for the next 15 to 20 years in a federal prison league.

Sincerely,

– Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Can I Keep Money in My Health Savings Account if I File for Chapter 7 Bankruptcy?

piggy bank stethoscope istockIf you file for Chapter 7 bankruptcy and have money left in your health savings account (HSA) or medical savings account (MSA) you may be wondering if you have to turn them over to the bankruptcy trustee. There are not many published court decisions on the answer to this question. But we do know that it will depend on where you file for bankruptcy and whether your state has an exemption for HSA or MSA funds. A new case from the Eighth Circuit sheds some light on how your court may rule.

Keeping Assets in Chapter 7 Bankruptcy

When you file for bankruptcy, most of your property becomes part of your bankruptcy estate. Your bankruptcy trustee has control over that property and can sell it for the benefit of your unsecured creditors.  Not all property is part of your bankruptcy estate, however. Bankruptcy law makes some exceptions. (To learn about those exceptions, see Property Not in Your Bankruptcy Estate.)

However, both federal and state laws list items of property that are “exempt” or safe from the trustee.  (Learn more about bankruptcy exemptions.)

Whether you can keep your HSA or MSA funds depends on:

  • whether the money is part of your bankruptcy estate (that is, does it fall within one of the exceptions), and
  • if it is part of the estate, whether you can exempt the funds.

Recent Eight Circuit Case: Cannot Keep HSA Money If You Use Federal Bankruptcy Exemptions

A recent decision by a Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals ruled on just this issue.

In that case, In re Leitch,  __ BR__  (B.A.P. 8th Cir. July 16, 2013), the court determined two things:

  • Health savings account funds are included in the bankruptcy estate. In so ruling, the court rejected the bankruptcy debtor’s argument that the funds were a health insurance policy and therefore not part of the bankruptcy estate under that exception.
  • Health savings account funds are not exempted in the federal bankruptcy exemption scheme. The debtor in this case opted to use the federal bankruptcy exemptions. The court rules that HSAs and MSAs are not exempt in the federal scheme.

To learn more about this case and the issue in general, see Nolo’s article Can I Keep HSA or MSA Funds in Chapter 7 Bankruptcy?

Are Your HSA or MSA Funds Safe in Chapter 7 Bankruptcy?

If you don’t live within the Eighth Circuit (Eighth Circuit states include Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota), it’s possible, but not likely, that your court will decide that HSA funds are not part of your bankruptcy estate. Check with a local bankruptcy attorney.

You may be able to keep your HSA money, however, if your state exempts those types of funds. At least six states specifically exempt health savings account money in Chapter 7 bankruptcy:  Florida, Mississippi, Oregon, Tennessee, Texas, and Virginia. And if your state does not have an HSA exemption, you can use any available wildcard exemption. (Learn more about wildcard exemptions in bankruptcy.)

Listen to the Podcast: Bankruptcy Attorney Leon Bayer on KALW’s “Your Legal Rights”

leon2Last night Nolo author Leon Bayer was featured on San Francisco public radio station KALW’s “Your Legal Rights.” If you missed Leon’s show, you can listen to the podcast.  Go to KALW’s website at www.kalw.org and look in the podcasts,  or click here.

This is a great opportunity to hear Leon’s very experienced perspective on a number bankruptcy and debt  issues, such as:

  • Will bankruptcy ruin your credit for the rest of your life?
  • What’s the true scoop on bankruptcy’s credit counseling requirement?
  • Can you  get rid of student loans in bankruptcy?
  • What’s the deal with the much-advertised credit repair clinics? Should you use one?
  • Can you negotiate with your bank if you can’t make your credit card payments?
  • Can you file for bankruptcy if you have lots of credit card debt but aren’t behind on credit card payments?
  • Will you lose the savings in your retirement accounts if you file for bankruptcy?
  • Can you get rid of a second mortgage in Chapter 13 bankruptcy?

To continue to hear Leon’s take on bankruptcy and debt issues, be sure to check out his “Ask Leon” series on this blog.