Articles Posted in Bankruptcy Pre-Planning

Bank-sign-150x150Banks do unexpected things when one of their customers files bankruptcy. Nothing they do is to help you. Even if you think your bank is the greatest, there may be reasons to change banks before you file your bankruptcy case.

  1. They May Take the Money in Your Account.

Your bank owes you the money that is in your account. But if you owe them money on a personal loan or a car loan, they have the right to take the money in your account to pay themselves what you owe them.  This is called a set off, or an offset.  While your bank can do this at any time, based upon the loan documents, the notice of bankruptcy is what will set this off.  All of a sudden, you can’t get to the money in your account. Your money is the bank’s money.

tax-return-150x150I’m speaking of your actual tax return – the 1040 Form with all schedules and attachments.  Make sure you get an electronic copy or a paper copy of your tax return if you’ve filed electronically.  Starting with 2017 tax returns, the IRS may ask you for the amount of your Adjusted Gross Income (AGI) from the last return you filed in order to verify your identity.

The Adjusted Gross Income (AGI) is the amount at the bottom of the first page of your tax return. So, if you file your own tax return, print a copy or save it to your computer before you log out. If you use a tax preparation service, make sure you get a printed or emailed copy from them when the tax return is filed.  Trying to track down the person that prepared your taxes six months or more later to get a copy can be a frustrating process.

There are also many other reasons to always maintain a copy of your tax returns.  For example, you may be asked to provide a copy of your tax return for your child when they apply for college and/or financial aid.  If you are considering filing bankruptcy, you will need to provide a copy of your last two years of tax returns to the Trustee. Whenever you wish to buy a home, you will be asked to provide copies of tax returns by whomever you are applying with for a mortgage loan.

I’m speaking mainly to those who know that they need to file a Chapter 7 bankruptcy case.  If you wait until you are back to work for several months and everything is going well again (except for what is now the older debt), you run the risk of becoming ineligible to file a Chapter 7 case.  Eligibility is not based on how much debt you have – it’s based on your household income for the past six months and whether or not you have any “disposable” income that could go toward paying some or all of your unsecured debt.  The court looks at the past 6 months of your income, compares it to certain qualified expenses, and determines what is left over (your disposable income) that could go toward paying your other debt.  This process is called the Means Test.

For example, today I met with a newly married couple and they both were out of work for several months.  When things were bad, they did some research online about bankruptcy, talked to some friends, and pretty much knew that a Chapter 7 would be their best bet to pull out of this bad situation.  Their credit card bills, medical bills, and various other unsecured debts were all past due, but they had managed to keep their house and car payments current. In this instance a Chapter 7 would be their best option.  They did well in their research and friends had pointed them in the right direction, to my office.  They both got hired at really good paying jobs. However…..they waited and put off contacting me.  They didn’t have any idea how important the timing of the Chapter 7 bankruptcy filing would be. The hardest job I have is convincing people to come and see me early, sooner rather than later. Many times we just talk and make plans to file later on. But at least they would have the information and knowledge about what they need to do and when to do it.

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A paper written by David Bernstein, an economist at the U.S. Treasury, argues that credit card debt can play a part in families losing their homes and that this debt is deepening the mortgage crisis.  He posted this paper as a private citizen, but utilized information from the Survey of Consumer Finance.  Credit card debt, mortgage foreclosures, and access to bankruptcy are linked.

He studied families whose mortgage payments take more than 40% of their income.  Within this group, it is 21 times more likely that they will default on their mortgage payments than people who utilize less than 40% of their income to pay for their mortgage.  But, if these families eliminated their credit card debt, about 1.5 million households could bring their mortgage payments down below that 40% range and increase their chances significantly in keeping their homes.

He also noted that in order to save their homes, more homeowners should consider bankruptcy.  Even if you can’t redo your mortgage, if they were to write off enough of their other debt, they would be able to make their payments.  Bankruptcy offers many more options than people realize and often is significant in helping families to receive a modification to their mortgage.

Yes. You can file bankruptcy in the US if you do not have a Social Security Number (SSN).

  1. There is no requirement that you be a US citizen to file for bankruptcy in the US.
  2. There is no requirement that someone be a US resident to file for bankruptcy in the US.
  3. There is no requirement that someone be in the US legally to file for bankruptcy in the US.
  4. There is no requirement that someone live in the US to file for bankruptcy in the US.
  5. There is no requirement that someone have a SSN to file for bankruptcy in the US.

11 USC 109 states that a person “that resides or has a domicile, place of business, or property in the United States, or a municipality, may be a debtor under this title.”  Debtor meaning a petitioner, bankruptcy filer, person who wants to file bankruptcy.

If you do not have a SSN, you may need to sign a statement to that effect or you could request an ITIN (Individual Taxpayer Identification Number) from the IRS . These are provided by the IRS to those who cannot obtain a SSN.  Although you may file a bankruptcy without a SSN, you must provide acceptable proof of identity at your bankruptcy 341 meeting. Continue reading

Eggs in a basketBankruptcy exemptions are offered at the State and Federal level.  The bankruptcy exemptions determine whether or not your property is protected (exempt) and if not exempt, how much you might have to pay to creditors in order to keep it.   For example, if your household goods are valued at a total of $8,000 and the applicable exemption is $10,000, you would be able to keep (protect) all household goods.  But, if the value of your household goods are $15,000 and the exemption is only $10,000, you would need to possibly pay unsecured creditors the difference of $5,000, surrender a portion of your household goods, or take other steps that are available.

This is all an important part of bankruptcy pre-planning.  Taking a look at all your assets, establishing proper values according to how the bankruptcy courts value property, and then comparing to exemptions to determine if anything is at risk and if so, what are the options at that point. Mississippi offers great exemptions to it’s residents.

So, how do you know what bankruptcy exemptions you can use? In Mississippi, you must be a resident of this State to use Mississippi bankruptcy exemptions.  If you are not a resident, you have the option of using Federal exemptions (just moved to Mississippi, filing bankruptcy in Mississippi – your prior state won’t allow you to use their exemptions, so Federal exemptions are your only choice).  Each State determines the rules under what is allowed – whether you can use their exemptions, other States, or Federal, and if so, under what circumstances.  In Mississippi, you cannot choose to use Federal exemptions over Mississippi exemptions if you are a Mississippi resident.  You must then utilize Mississippi exemptions.

Beware of swapping your domestic obligations with your former spouse.  Substituting debts or replacing property that was originally the former spouse’s obligation or asset can bring about unforeseen consequences.

Example:  The former wife was awarded the marital home, and the former husband was required to pay the mortgage until satisfied.  His business began to falter and he could not continue paying the mortgage.  In order to assist him, the former wife agreed to let him use the home as collateral for a new loan, which both parties signed.  In the former husband’s bankruptcy case, his obligation to the former wife was discharged (wiped out) because the new loan constituted a new debt that was not covered by or arising out of the parties’ marital dissolution agreement or divorce decree.  So the former wife’s choices are now to remain responsible for the debts of which the home is collateral or to discuss filing her own bankruptcy.

Please consult with a bankruptswapping moneycy attorney to discuss options to do to deal with debts that are overtaking you for whatever reason. And especially – never, never, never put your home up for collateral to deal with other debts without consulting with a bankruptcy attorney first.  It may seem backwards but there is nobody better to consult with on how to deal with debt (and to try to avoid bankruptcy) than a bankruptcy attorney.  Seeking advice early is the key. In the above example, a lot of heart ache, a home, and possibly even a business could have been spared if this advice had been followed.

 

assets2The bankruptcy code defines “property” very broadly.  If you are considering filing a bankruptcy, it is important for you to know what all is considered property of the “bankruptcy estate” and whether or not it is covered fully by the allowable bankruptcy “exemptions”.  Even the property that is “exempt” is property of the estate until the exemption claims are final (generally 30 days after the bankruptcy 341 meeting).

Property includes all of your legal and equitable interests.  For chapter 13 cases filed in Mississippi, all of the debtor’s property, including acquired property and income necessary to fund a chapter 13 repayment plan is considered property of the estate during the entire chapter 13 case.

So what are some examples of property other than the obvious assets such as house, car, clothes, etc?  The right to file and settle a lawsuit; stock Continue reading

Each one of these things can have serious consequences depending on the plan we develop for dealing with your debt, so:

1. Don’t borrow any more money. Don’t take out a second mortgage.
2. Don’t take money out of your retirement, 401k, or IRA.
3. Stop using your credit cards. Don’t use the convenience checks and don’t take cash advances. Don’t do “balance transfers” from one credit card to another.
4. Don’t keep your money in the same bank or credit union where you owe money. Stop all direct deposits into that account and redirect them to a different bank. Continue reading

The protection available to you when you file bankruptcy is immediate and automatic.  The moment you file, whether it is a Chapter 7 or a Chapter 13 bankruptcy case, the court places you under it’s protection. Both your income and property are completely sheltered from any creditor seeking to repossess, foreclose, garnish, or seize them. The court refers to this as “The Automatic Stay”.  Any and all collection attempts against your income or your property must stop.  If a lawsuit has been filed, it must cease. If a judgment has been issued and a subsequent Writ of Garnishment has gone out, it must cease.  If the repossession order has gone out, efforts must cease.  If the foreclosure date has been set, it must cease.  Also, creditors must stop calling you, sending you letters, calling your family, etc.  The Automatic Stay is known as “the protection that halts any and all creditor collection activity”.  For more reasons why you may not want to wait, click here.   Bankruptcy was created to protect you, your income, your family, and Continue reading