The Bankruptcy property exemptions in Massachusetts recently changed to protect considerably more property of individuals from their creditors. When filing for Chapter 7 Bankruptcy this "exempt" property of the debtor is not included in the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts. In simpler language, exempt property is property you get to keep.
But what happens to property that isn't exempt?
If you file for bankruptcy and property that you own exceeds the exemptions then you have technically surrendered that property to the Trustee upon filing. In other words, by asking the Bankruptcy Court to help you with your debts, you have agreed to give them your property as well. The property that is not exempt is considered part of the Bankruptcy Estate and in a Chapter 7 Bankruptcy this property will be used to pay your creditors proportionally to the amount of debt they are owed.
If the non-exempt property is liquid funds (such as a bank account) then you will be forced to pay these funds to the trustee who will then take a percentage for their fees and pay the rest to the creditors. If the non-exempt property is non-liquid, such as a car or jewelry or a house, then the trustee will auction the property and use the proceeds of the auction to pay their fees and pay the rest to the creditors.
Friday, May 27, 2011
Friday, May 20, 2011
Are Low Cost Bankruptcy Filings a Scam?
A Chapter 7 and 13 Bankruptcy Blog recently posted an article entitled The Low Cost Bankruptcy Filing Scam Revealed, which describes the two types of scams behind lawyers who offer to file bankruptcies for $300 or less. Basically, the scams involve charging the client for other services that offset the small filing cost.
In one instance, the client is charged for "debt relief" services prior to the bankruptcy which inevitably fail because the client should have been told from the start that their best options was bankruptcy. In the other instance, the client is told the cost is $300 or less, but this is only for the skeletal filing, and the attorney then charges for the other necessary schedules individually.
Fortunately, these "scam" attorneys are the exception and not the rule. Most firms are upfront about what their fees are and what those fees cover. At Kelsey & Trask, P.C. we go so far as to publish this information on our website, and provide a Fee Calculator to help you figure out exactly what your total cost will be. Also, we provide the clients with a specific list of what services this cost includes and what it does not in our Retainer Agreement. Be wary of any attorney who will not provide you with this information at the initial consult.
In one instance, the client is charged for "debt relief" services prior to the bankruptcy which inevitably fail because the client should have been told from the start that their best options was bankruptcy. In the other instance, the client is told the cost is $300 or less, but this is only for the skeletal filing, and the attorney then charges for the other necessary schedules individually.
Fortunately, these "scam" attorneys are the exception and not the rule. Most firms are upfront about what their fees are and what those fees cover. At Kelsey & Trask, P.C. we go so far as to publish this information on our website, and provide a Fee Calculator to help you figure out exactly what your total cost will be. Also, we provide the clients with a specific list of what services this cost includes and what it does not in our Retainer Agreement. Be wary of any attorney who will not provide you with this information at the initial consult.
Wednesday, May 18, 2011
My Ex Owes Support and is Filing for Bankruptcy: What Now?
We previously wrote an article regarding the dischargeability of domestic support obligations, such as child support and alimony. But just knowing that the arrears are not dischargeable may not be enough. How do you collect them without violating bankruptcy law?
If you are owed child support, alimony, separate support or money or property pursuant to a divorce separation agreement, and the other party files for bankruptcy, it is important that you first know your rights regarding the dischargability (or non-dischargability) of those obligations. Each of the above are handled differently depending on the type of obligation (support versus a property settlement) and the type of bankruptcy (Chapter 7 or Chapter 13).
CHAPTER 7 CASES
In Chapter 7 Cases, the answer is simple: domestic support obligations and divorce property settlements are non-dischargeable. According to the bankruptcy code at 11 U.S.C. § 523(a):
So, if a payor owes you back child support, alimony or or property division payments pursuant to a divorce agreement you should file an objection to the discharge of those debts, and then pursue your rights in the Probate and Family Court to obtain payment.
CHAPTER 13 CASES
Debtors may use the bankruptcy protections of Chapter 13 to pay back child support arrears according to the chapter 13 plan and avoid a potential contempt in Probate and Family Court. Therefore, most issues regarding unpaid child support or alimony (and payment of support arrears) arise in Chapter 13 Bankruptcy Cases. However, while bankruptcy can provide some protection to the debtor to pay back support over the course of the plan, the debtor must meet all requirements of the Massachusetts Local Bankruptcy Rules and the U.S. Bankruptcy Code in order to ensure they receive their discharge upon the completion of their plan.
A discharge in a Chapter 13 Case does not discharge an individual debtor from any debt for a domestic support obligation, but may discharge other debts, including debts arising out of a divorce or separation agreement that are not dischargeable in a Chapter 7 case. See 11 U.S.C. § 1328(a).
In order to receive a discharge of other debts (but not domestic support obligations) in a Chapter 13 case, the debtor must successfully complete the repayment plan, and must file a Motion for Discharge, and certify that all obligations for child support, spousal maintenance and alimony due that were due on or before the date of the motion, including all payments due under the plan for amounts due before the petition was filed and any domestic support obligations that arose after the filing of the petition have been paid. The debtor must serve a copy of the motion and certification on the beneficiary of the domestic support obligation.
At that point, the beneficiary may object to the entry of the debtor’s discharge if there are outstanding obligations and a discharge will not be granted unless all obligations have been paid. See 11 U.S.C. § 1328(a). See also Massachusetts Local Bankruptcy Rule 13-22 and Official Local Form 12.
However, there is one exception: domestic support obligations that are assigned to a governmental unit (i.e., collected by the Department of Revenue and distributed to the beneficiary) may be paid less than 100% through the plan, but only if disposable income is dedicated to the plan for a full five years. In this case, the debtor would continue to owe any child support not paid at the completion of the plan and DOR would continue to be involved at the end of the bankruptcy case.
Finally, bankruptcy will not change the current support obligations following bankruptcy. At the conclusion of either a chapter 7 or chapter 13 bankruptcy, the debtor’s obligations to pay child support remain unchanged, and must pay any obligations unless and until amended by an order of the Probate & Family Court. If you want to know more about amending support orders in the Probate & Family Court in Massachusetts view our information on Modifications.
If you are owed child support, alimony, separate support or money or property pursuant to a divorce separation agreement, and the other party files for bankruptcy, it is important that you first know your rights regarding the dischargability (or non-dischargability) of those obligations. Each of the above are handled differently depending on the type of obligation (support versus a property settlement) and the type of bankruptcy (Chapter 7 or Chapter 13).
CHAPTER 7 CASES
In Chapter 7 Cases, the answer is simple: domestic support obligations and divorce property settlements are non-dischargeable. According to the bankruptcy code at 11 U.S.C. § 523(a):
“[a] discharge [in a Chapter 7 Case] does not discharge an individual debtor from any debt… (5) for a domestic support obligation; [or] (15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit."
So, if a payor owes you back child support, alimony or or property division payments pursuant to a divorce agreement you should file an objection to the discharge of those debts, and then pursue your rights in the Probate and Family Court to obtain payment.
CHAPTER 13 CASES
Debtors may use the bankruptcy protections of Chapter 13 to pay back child support arrears according to the chapter 13 plan and avoid a potential contempt in Probate and Family Court. Therefore, most issues regarding unpaid child support or alimony (and payment of support arrears) arise in Chapter 13 Bankruptcy Cases. However, while bankruptcy can provide some protection to the debtor to pay back support over the course of the plan, the debtor must meet all requirements of the Massachusetts Local Bankruptcy Rules and the U.S. Bankruptcy Code in order to ensure they receive their discharge upon the completion of their plan.
A discharge in a Chapter 13 Case does not discharge an individual debtor from any debt for a domestic support obligation, but may discharge other debts, including debts arising out of a divorce or separation agreement that are not dischargeable in a Chapter 7 case. See 11 U.S.C. § 1328(a).
In order to receive a discharge of other debts (but not domestic support obligations) in a Chapter 13 case, the debtor must successfully complete the repayment plan, and must file a Motion for Discharge, and certify that all obligations for child support, spousal maintenance and alimony due that were due on or before the date of the motion, including all payments due under the plan for amounts due before the petition was filed and any domestic support obligations that arose after the filing of the petition have been paid. The debtor must serve a copy of the motion and certification on the beneficiary of the domestic support obligation.
At that point, the beneficiary may object to the entry of the debtor’s discharge if there are outstanding obligations and a discharge will not be granted unless all obligations have been paid. See 11 U.S.C. § 1328(a). See also Massachusetts Local Bankruptcy Rule 13-22 and Official Local Form 12.
However, there is one exception: domestic support obligations that are assigned to a governmental unit (i.e., collected by the Department of Revenue and distributed to the beneficiary) may be paid less than 100% through the plan, but only if disposable income is dedicated to the plan for a full five years. In this case, the debtor would continue to owe any child support not paid at the completion of the plan and DOR would continue to be involved at the end of the bankruptcy case.
Finally, bankruptcy will not change the current support obligations following bankruptcy. At the conclusion of either a chapter 7 or chapter 13 bankruptcy, the debtor’s obligations to pay child support remain unchanged, and must pay any obligations unless and until amended by an order of the Probate & Family Court. If you want to know more about amending support orders in the Probate & Family Court in Massachusetts view our information on Modifications.
Monday, May 9, 2011
Thursday, May 5, 2011
What happens at the end of successful Individual Chapter 7 Bankruptcy?
The trustee will take any assets of value, which are not exempt, and distribute those assets to the creditors in order of priority. For more information about what types of assets are exempt visit our Exemptions page.
Any unsecured creditors that are left holding claims when the assets run out will be discharged unless they fall into a very limited list of non-dischargeable debts (such as student loans or most income tax debt).
If no objections are filed, then the debtor is issued a discharge, which is an order that prohibits discharged creditors from trying to collect their debts from the debtor. This is the typical end of a Chapter 7 Bankruptcy case, although there are certain objections or audits that can be filed later which could re-open or undo the discharge.
Wednesday, May 4, 2011
What happens at the end of successful Corporate Chapter 7 Bankruptcy?
When a corporate entity files for Chapter 7 Bankruptcy (liquidation), the business is essentially asking the bankruptcy trustee to manage the liquidation of corporate assets. The trustee will take any assets of value and distribute those assets to the creditors in order of priority.
A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.
Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.
A corporate entity does not receive a discharge of debts at the the end of the bankruptcy. Any assets which were not distributed by the trustee are abandoned back to the business which must now be dissolved by the owners. The owners may be subject to collection on debts of the company if they personally guaranteed any of those debts or failed to appropriately separate their personal and corporate assets. However, any strictly corporate debts not satisfied in the bankruptcy are owed solely by the corporate entity and any property abandoned back to the business could still be collected pursuant to state collection laws.
Practically speaking, any assets abandoned back to the business are probably so invaluable as to not be worth collecting. Once any remaining corporate debts are paid, the business can be dissolved and any remaining assets distributed to the owners.
Tuesday, May 3, 2011
What if I lost my old Tax Returns?
When filing for an individual bankruptcy it is required that your income tax returns be completed. Without complete tax returns you cannot accurately report all of your assets (if you have any refunds due) or your debts (if you have any unpaid taxes due).
Your bankruptcy attorney or the bankruptcy trustee may ask for copies of these returns to verify your income, any tax debt owed or refunds received and to verify that the returns have been filed. Pursuant to 11 U.S.C. s. 521(e)(2)(A)(i), 7 days prior to the 341 meeting of creditors you are required to provide your most recent tax return to the trustee, and under 11 U.S.C. s. 521 (f)(2) the trustee, the court or any creditor can ask for your last 3 year's returns.
If you have lost copies of your old tax returns you or your attorney can obtain them by using IRS Form 4506-T Request for Transcript of Tax Return. You can also request a copy of your tax return or tax account information online on the IRS website or by telephone at 1-800-908-9946. In some instances, practitioners can obtain expedited information through the Practitioner Priority Service (PPS) and Electronic Account Resolution (EAR) systems.
If your attorney needs to talk to the IRS to resolve tax issues you may also need to provide them with a Form 2848 Power of Attorney.
Your bankruptcy attorney or the bankruptcy trustee may ask for copies of these returns to verify your income, any tax debt owed or refunds received and to verify that the returns have been filed. Pursuant to 11 U.S.C. s. 521(e)(2)(A)(i), 7 days prior to the 341 meeting of creditors you are required to provide your most recent tax return to the trustee, and under 11 U.S.C. s. 521 (f)(2) the trustee, the court or any creditor can ask for your last 3 year's returns.
If you have lost copies of your old tax returns you or your attorney can obtain them by using IRS Form 4506-T Request for Transcript of Tax Return. You can also request a copy of your tax return or tax account information online on the IRS website or by telephone at 1-800-908-9946. In some instances, practitioners can obtain expedited information through the Practitioner Priority Service (PPS) and Electronic Account Resolution (EAR) systems.
If your attorney needs to talk to the IRS to resolve tax issues you may also need to provide them with a Form 2848 Power of Attorney.
Monday, May 2, 2011
What happens to my Cosigner if I file for Bankruptcy?
Update: Because of the extensive interest in this topic, we have written two follow-up posts which more specifically address these issues from the standpoint of either the primary borrower (i.e. the person who is gaining the advantage from the loan, whether it be an education, car, home, etc.) or the co-signer (i.e. the person who signed the loan usually just to assist the other person in qualifying):
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
Original Post:
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.
In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.
If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.
If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
I co-signed a loan and the primary borrower has filed for bankruptcy. What should I do to protect myself?
Original Post:
When you file for bankruptcy you are required to disclose if any of your debts have co-debtors. A co-debtor is someone who also agreed to pay that debt, which includes co-borrowers, co-signers, and guarantors. Even if the debtor is discharged of their obligation for a debt, the co-debtor still owes the debt.
In many cases, the filing of bankruptcy of one of the borrowers will constitute a default on the loan and the creditor can then accelerate the loan against the co-debtors if the debtor does not reaffirm. Accelerating the loan means that the lender requests full payment or in the case of a mortgage, forecloses. Despite this ability, in most cases lenders will not accelerate a loan, but will allow it to remain under the current terms if the co-debtor continues to make timely payments.
If the creditor has already sued both the debtor and a co-debtor that collection action can usually continue against the co-debtor, except in the case of a Chapter 13 which specifically protects co-debtors from collection actions during the pending bankruptcy.
If you are a co-debtor on a loan and the borrower is filing for bankruptcy, you should consult with an attorney about what your rights and obligations may be. It is important that you at least find out whether or not the debtor intends to reaffirm their obligation to the creditor or whether you will be left owing the full amount yourself.
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