my utah bankruptcy blog


Am I stuck in Chapter 13 forever, or can I pay extra and get out of it early?

Posted in Utah Bankruptcy by Administrator on the December 16th, 2013

You can definitely get out early, but it’s more complicated than you think.

If your income is below median, then your plan was a base plan for 36 months. If you have friends or family who can help, you can pay this plan off early, but you need to file a motion for early payoff with the court. The court almost always grants this motion, but you cannot be borrowing the money; it needs to be a gift. Otherwise, you have to file a separate motion to approve loan before you can file the motion for early payoff.
If you were above median, then your plan is a 60 month plan. You can still pay it off early, but you need to jump through the same hoops.

In either situation, the trustee usually allots, and the court usually allows, your attorney to file a motion to get an extra $500 in fees from the court for filing the early payoff motion, but it’s well worth it. You get your discharge early, which means that your credit starts to rebound more quickly.

Note: this is not legal advice. If you need help, call 801-980-1313, or email help@robertspaynelaw.com.

These comments do not constitute legal advice. If you need legal help, go to www.robertspaynelaw.com

Posted in Utah Bankruptcy by Administrator on the December 13th, 2013

This blog will simply list questions I get asked on a day-to-day basis, and I’ll try to answer them briefly, but with enough information to cover the situation.

If you need legal help, you can contact me

website:  www.robertspaynelaw.com

email:  help@robertspaynelaw.com

phone:  801-980-1313.

Do I have to keep making payments on my mobile home after I file bankruptcy?

Posted in Utah Bankruptcy by Administrator on the December 13th, 2013

Yes, if you want to keep it.

I had clients who recently filed a chapter 7 bankruptcy and listed the lienholder on their mobile home.  It was worth about $18,000, and they only owed her about $2,000.  After filing bankruptcy, they stopped making payments.  The creditor called me and asked if I could speak with them.

The payments are only $150 a month, and they’re within a year and a half of owning the home outright.

When I spoke with the clients, they advised that they thought that bankruptcy discharged their debt on the home.  Kind of.  It discharged their personal liability, but the home was still collateral for the loan.  This means that if they want to keep the home, they have to pay off the lien against it.

In this situation, it was a no brainer to keep making payments, since they owed so little.

Former Posts from December 2013.

Posted in Utah Bankruptcy by Administrator on the December 13th, 2013
December 9, 2013 — My name is on my son’s bank account he set up for his mission?  Will the trustee take that money?
No.  But we have to prove that it’s not your money.On the day we file bankruptcy, we are required to list all bank accounts in which you have an ownership interest, and if your name is on the account, then you have an ownership interest.  When we meet with the bankruptcy trustee about a month after filing your case, he will ask for a bank statement showing the balance on the date of filing.

This means that we generally like to file on a Thursday when the account is low before your Friday payday.

With missionary accounts, or any joint account, it becomes a little more problematic.  if the child is over 18 and you can prove that it was his/her funds that went into the account, then we can successfully that it’s not your money, and it’s not the bankuptcy estate’s money.

However, if your child is under 18, then it’s your money, and the trustee will order you to empty that bank account, pay the trustee, and then the trustee will use the money for the benefit of your creditors.

If you argue that it’s not your money because it’s your 7 year old daughter’s college fund that grandma put $5,000 into, you still lose.  She’s a minor, and you own her account.

December 10, 2013 — I am not paying tithing (charitable contributions) right now, but I’d sure like to start.  Will this help my bankruptcy?
Spiritually, yeah, it should help.Financially, making charitable contributions may help your case, but it’s complicated.  If are a below median debtor (your income is lower than the average income for your household size, it doesn’t matter whether or not you pay your tithes or donations to a charity.  If you are above median, there is pretty much a dollar for dollar deduction in the amount you have to pay back your creditors if we have to file a chapter 13.

For instance, if the median income is $50,000 a year and you’re making $56,000, then you’re above median.  You have $6,000 of disposable income a year.  If you are paying $500 a month in tithing, then you’re paying out $6,000 a year to charity, and you have no disposable icome left over.

However, it needs to be consistent.  You cannot suddenly “come to Jesus” a week before filing bankruptcy and expect it to help your median income figures.  The trustee will ask for verification, such as a year to date printout from your ward clerk, to prove that you’re actually donating money.

December 11, 2013 — I filed bankruptcy and am giving up my car, but the bank just filed a claim against my insurance.
Bankruptcy discharges your personal liability for the vehicle loan, but it doesn’t stop the bank from seeking compensation from a third party who did not file bankruptcy.For example, if Mom and Dad were on the loan, then the bank can sue them.

If the loan required insurance and you return the car with body damage, then the bank can file a claim against that insurance to repair the body damage.

December 12, 2013 — Will bankruptcy stop my paycheck garnishment for child support?
No.If ORS (Office of Recover Services) is garnishing your paychecks to pay child support and/or alimony (what we call a DSO or Domestic Support Obligation), then filing bankruptcy will not stop that garnishment.  Bankruptcy does not normally affect priority debts, which includes that child support garnishment.

Former Posts from November 2013

  • November 5, 2013 — Can student loans be discharged?

    Today I worked with a client who received her Order of Discharge from the Utah Bankruptcy Court (United States Bankruptcy Court, District of Utah)  two weeks ago.  The Order of Discharge plainly listed her student loans through Nelnet.

    She called me, excited, because her privately-funded student loans were discharged by the bankruptcy.

    No, they were not.

    The Order of Discharge issued by the court has a section entitled “Explanation of Bankruptcy Discharge in a Chapter 7 Case.”  This section advised that some debts are not discharged, including “most student loans.”

    For those student loans to be deemed dischargeable, we would have to file an adversary proceeding in the Utah Bankruptcy Court under 532(a)(8) and argue that repayment of those loans “would impose an undue hardhip on the debtor….”  This is a very high standard.

    She hoped that the loans were still discharged because they were not federal backed, but even if the loans were not federally guaranteed, so long as they were funded by either a governmental unit or a nonprofit organization set up for educational purposes, the loans survive.

    She wasn’t happy, but at least I had a clear answer for her.

  • November 8, 2013 — Does bankruptcy actually stop a garnishment?

    Clients wanted to file today (Friday) to stop a garnishment on Tuesday.

    Technically, filing today stops the garnishment.  The moment we file, there is an Automatic Stay, which stays (stops) any collection proceedings, including garnishment, repossession, and even foreclosure.  (11 USC § 362 – Automatic stay).  However, notifying payroll can be a bear.

    Since the client works for a multi-national corporation, his Utah office’s payroll is processed in San Jose, California, with a phone tree that led me to 8 different people, none of whom could even give a fax number or email for payroll.

    Client eventually found an old email from a payroll adminstrator, and I was able to send off a stop-garnishment letter, but unless you have good contact information for payroll, the garnishment still gets processed, and then it takes weeks to get it back from the creditor.

     

  • November 11, 2013 — Form 23, Case closed without discharge.

    I received a frantic client phone call Saturday night.  My clients received a letter from the court entitled “Clerks Notice to File Financial Management Education Certificate (B23).”  This same letter threatened my clients that if they didn’t take their second bankruptcy class, that their bankruptcy case would be closed without discharge (no discharge = all debts survive the bankruptcy).

    I told them to take the second online class, send me the certificates, and I’d file them with the court.  Apparently, they had ignored my email and letter about the class, but a letter from the court was more than enough to prompt them into action.

    They took the online class, and I received the certificates Sunday evening.  I emailed the client back Sunday night at 10:05 p.m., and I filed the cerfiticates the next morning.  The court is even friendly enough to have a .pdf copy of their “Debtor’s Certification of Completion of Instructional Course Concerning Financial Management (B23) “on their website.

    When a bankruptcy case gets closed without discharge, we’re left with two options:  1.  we can file a new case, further damaging your credit but adding new creditors, or 2.  we can file a Motion to Re-Open Chapter 7 Case, Motion to Vacate Dismissal, and Motion to Extend Deadline to File Financial Management Education Certificate (B23).

    To be honest, it’s much easier to simply take the second class on time so that no other problems arise.

     

  • November 12, 2013 — How much of a tax refund will the trustee take?

    So today in court I am at a 341 Meeting of Creditors and the trustee directs my client to provide her with a copy of his 2013 taxes (when he files them next year) so that she can take the bankruptcy estate’s portion and use those refunds to pay off a portion of his creditors.

    Since he filed in the end of September, she is demanding 9/12 of his tax refund he receives next April.  If he filed in August, it wouldn’ve been 8/12, June 6/12, etc.

    However, it gets a little more complicated than that.  In a Chapter 13 you only get to keep $1,000 (sometimes $2,000 of your refund) each year for 3 years.  In a Chapter 7, the trustee will seize your refund, but usually only it there is at least $2,000 available to pay out to creditors.  This $2,000 is not a hard and fast rule, but it usually holds true.

    If you file in January through March, you lose the whole refund that you receive in April.  Unless……. you wait to file, receive your refund, spend it on exempt items, and then go bankrupt.  I’ll cover that one tomorrow though.

     

  • November 13, 2013 — So what do you do with your tax refund in bankruptcy?

    Now I’m meeting with clients who have a large tax refund coming to them next year (in 4-6 months from now).  If we file a chapter 7 now, before they receive it, the chapter 7 trustee will take it, all of it.

    So what do you do?  Spend it.

    If we can wait to file bankruptcy until after you receive your refund, you won’t lose it.

    So let’s say you get your refund March 1, 2014.  What do you do?

    Better said, what don’t you do:

    1.  Don’t go buy a new toy like a dirt bike or a tv.

    2.  Don’t pay off any friends or family.  This is a preferential transfer, to an insider no less, and it results in Mom and Dad being sued by the trustee.

    So what do you do:

    1.  Spend it on exempt items under Utah Law.  This basically means food, clothing, washer, dryer, fridge, freezer, stove.

    (Did you see a computer on the list?  No.   Don’t ask me if that’s okay.  It’s not).

    2.  And use the rest to pay me.  :)

    So let’s say you spend the tax refund on food storage March 1st and keep all of your receipts.  When can you file?  March 2nd.

    Here is a relevant portion of the

    Utah Exemptions Act, Utah Code Title 78B Chapter 5, Section 505

    An individual is entitlted to an exemption in …

      (viii) (A) one:

                (I) clothes washer and dryer;

                (II) refrigerator;

                (III) freezer;

                (IV) stove;

                (V) microwave oven; and

                (VI) sewing machine;

                (B) all carpets in use;

                (C) provisions sufficient for 12 months actually provided for individual or family use;

                (D) all wearing apparel of every individual and dependent, not including jewelry or furs; and

                (E) all beds and bedding for every individual or dependent;

     

     

  • November 14, 2013 — What do you bring to your 341 Meeting of Creditors?

    So yesterday I am at a 341 Meeting of Creditors, and one of the debtors didn’t have proof of his social security number.  This is a problem.

    About a month after you file bankruptcy, you meet with a trustee apointed by the court.  There is a limited pool of trustees, and each serves (for the most part) a specific area of the state.  The bankruptcy court keeps a current list of Chapter 7 and Chapter 13 trustee information on their website at http://www.utb.uscourts.gov/strstcontacts.htm  .

    When we meet with the trustee, we generally need four things:

    1.  driver’s license

    2.  social security card

    3.  bank statement showing balance on date of filing bankruptcy, and

    4.  current paystub.

    Yesterday, the client was missing his social security card.  If we can’t find proof of social, the trustee can continue (reschedule) the meeting and make you come back another day.  Fortunately, there are a lot of other things that will suffice.  We showed the trustee a W2, which also contained the information.  In the past, we have also used 1099 forms, social security and/or disability award letters, and once I even used a copy of a lawsuit filed by a creditor who mistakenly put the client’s social security number on the front caption of the suit.

     

  • November 15, 2013 — What if you make too much money to file bankruptcy?

    I would love to have this problem.

    Today I met with a couple who have four children and earn over $120,000 a year.  Their mortgage payment is only $1,200 a month, so the home is more than reasonable, but their credit card debt of over $83,000 is staggering.

    The husband is current being sued and has a garnishment pending for 25% of his wages.  (In case you’re wondering how to garnish someone, the Utah State Courts have a great “How To” website for garnishment at http://www.utcourts.gov/resources/forms/garnishment/ .

    He needs to stop the garnishment but was worried that their overall income was too high to file bankruptcy.  In a way it is.  They make too much to file a Chapter 7 (absent some amazing expenses like very high child support or alimony).  They make $120,000 and the median income for their family size is currently $82,790.  They make almost $40,000 above the median income.  So even if we filed a Chapter 7, the U.S. Trustee (DOJ) would step in and move to dismiss our case or convert it to a Chapter 13.

    This means that we have to file a Chapter 13.  Because the husband makes so much money, we have almost $2,000 a month in DMI (disposable monthly income).  This means that when we file the case, he will have to pay at least $2,000 a month for 60 months to his creditors, or pay them all off in full, whichever is smaller.

    With $83,000 of credit cards over a 60 month plan, the payments end up being around $1,500 a month (with a few extras thrown in).  This pays all of their creditors off in full, over a 5 year plan, at 2% interest.

    So yes, kind of, they make too much for a chapter 7, but they can still file bankruptcy.  It just has to be a chapter 13.

    This also means that his paychecks won’t be garnished.  25% of his $8,000 a month take-home would have been $2,000 a month one creditor, with the phone still ringing, legal fees building, and interest accruing.  Bankruptcy was a much better option.

  • November 16, 2013 — Mortgage loan modification and bankruptcy.

    Today I was in Judge Thurman’s court on a Motion to Approve Loan Modification and Motion to Modify Chapter 13 Plan.  The debtors had finally obtained a loan mod.  This took about a year of phone calls, re-sending faxes, and constant quasi-harrassment of the mortgage company by the debtors until it was approved.

    The loan mod took approximately $25,000 in mortgage arrears and put them at the end of the mortgage.  The debtors didn’t have to make additional payments to catch up on the $25k, and now they didn’t have to pay that $25k back as a part of their chapter 13 plan.  This meant that I could drop their chapter 13 plan payment from $791 a month to $150 a month, which was a welcome change to their budget.

    We had originally filed their chapter 13 plan because there was a pending foreclosure, and they needed to stop that foreclosure sale and propose a way to catch up on those missed payments.  In the bankruptcy, our 5 year plan provided for $25,000 of catch up payments to the mortgage company in addition to making regular mortgage payments.  It was a tough plan, but they stuck with it for over a year until the loan mod came through.

  • November 19, 2013 — Does a tax refund anticipation loan through HR Block protect my tax refund from the bankruptcy trustee?

    No, no, no.

    The tax refund anticipation loan is nothing more than a payday loan you take out prior to receiving your real tax refund.  If you take out an anticipation loan and then file bankruptcy the next day, you have filed before officially receiving your tax refund, and you will lose the whole thing to the bankruptcy trustee.

    Even worse, if you take out the anticipation loan, spend that money, get the rest of your refund, spend that on exempt items, and then go bankruptcy, the trustee may sue you and/or the creditor the the anticipation loan you paid back when the refund actually arrived.

    So, in short, the answer is NO.

  • November 20,2013 — Can I pay the court filing fee in installments?

    Yes, when I file a case, I can file an Application to Pay Filing Fees in Installments with the bankruptcy court.  This allows you to pay the $306 (for a Chapter 7) or the $281 (for a Chapter 13) with the court over two or three installments after we fle the bankruptcy case.

    The biggest problem occurs when you forget to make one of the payments.  When you miss a payment, the case is automatically dismissed, and this adminstrative dismissal removes your bankruptcy protection.  The Automatic Stay is gone, which means that creditors can now call, sue, garnish, levy, and foreclose.  This is a pretty bad thing.

    I can file a Motion to Vacate Dismissal (which means that the Court “takes back” its dismissal and reinstates the case), but the hearing is usually about 25 days away, I may not be able to file it right away, and your creditors can start hitting you again during that 25 day waiting period.

    So yes, you can pay the filing fee in installments, but if you miss one, all hell breaks loose, and it takes forever (25 days seems like forever when you’re waiting) to clean up.

  • November 21, 2013 — What happens if I don’t give the trustee my tax refund?

    Short answer:  you unleash a hellstorm of court proceedings.

    Long answer:  If you don’t turn over your tax refund monies after the trustee demands them, then various bad things can happen to you.  In a chapter 13, you are required to turn over your refunds for the next three years.  If you fail to do so, the trustee will dismiss your case.  Sometimes, the trustee will dismiss your case and request that the court bar you from filing a new case for 180 days.  This means that you can’t go bankrupt, can’t stop garnishment, and can’t avoid creditors for 6 months from the date that it is dismissed.

    In a Chapter 7, it’s even worse.  If you don’t turn over your tax refund, the trustee can and will file a Motion for Turnover (requiring you to turn over the refund).  If you still don’t comply, then the trustee will file a Motion to Revoke Discharge, and your chapter 7 bankruptcy gets thrown out, you still owe the trustee the tax refund money plus his/her legal fees, and you can never get a discharge of those debts in a new Chapter 7.

    It’s bad.

    This is why I warn my clients about losing their tax refunds and remind them that it’s worth it in the short term to get rid of a lot of debt.

  • November 22, 2013 — Do I have to reaffirm on my car loan?

    If you want to keep it, probably yes.

    Prior to the BAPCA (the bankruptcy law changes in October of 2005), you could “drive through” the bankruptcy with your car and keep the vehicle, so long as you kept making payments to your secured creditor.

    Now, you are required to reaffirm your debt (reaffirming the debt means that you sign an agreement that you will still be liable for the loan even after the bankruptcy discharge.  The bankruptcy court has a standard reaffirmation agreement form here.

    Some creditors don’t officially make you reaffirm the debt, and you can keep making the payments and keep the car, but most require it.  Even if you are current on the payments, they will demand return of the vehicle and/or repossession if there is no reaffirmation agreement on file with the court.

    So yes, you probably do need to reaffirm if you want to keep the car.

  • November 23, 2013 — I am borrowing my mom’s car; do I have to list that in my bankruptcy?

    Kind of.

    You do not own the car, so you are not on title for it, so, No, you don’t have to list it as one of your personal assets.  However, you are required to list it in the Statement of Financial Affairs as property that someone else owns that you are borrowing.

    At the 341 Meeting of Creditors, the bankruptcy trustee will ask you what you are using for transportation.  His follow-up question will then be, “Do you have any ownership interest in the vehicle?”  It’s not a scary question, but it’s nice to be prepared and be able to answer that it is not yours.

    What is a little more involved is when your parents have purchase a car, in their names, and have a loan against it with their bank or credit union.  You are making the payments on it, but everything is in their name.  In this kind of situation, we let the trustee know that you are making the payments and that, yes, one day you hope to own it.  We don’t try to hide anything from the bankruptcy trustee.

     

  • November 26, 2013 — Should I try debt settlement instead of bankruptcy?

    Yes, if you have the money to afford it, anything is better than bankruptcy.  You can generally settle out debts for about 40% of what you owe, usually with a lump sum payment up front and a few small payments on the back end.

    The problem is that most of my clients don’t have lump sums of cash to settle out debts, and even if they do, they can settle one debt but all of the others keep coming after them.

    If you do it on your own, you may or  may not get a good 40% number.  If you use an attorney, the 40% is easier to get, but the attorney will charge you 10% of the amount you save.  So, on a $10,000 debt, you settle for $4,000, and then you pay your attorney $600 (10% of the $6,000 you saved).

    All in all, I prefer bankruptcy because it is clean and fairly simple.  But if you have the cash to try to settle, then do so.

  • November 27, 2013 — Can I get my 341 Meeting of Creditors date rescheduled?

    Yes, but it’s obnoxious.

    I have to file a motion to reschedule the 341 meeting and give the court a good enough reason that we need a new hearing date.  Most reasons do not suffice.  Elective surgery, mean bosses, family trips, etc. are not good reasons.

    However, I had a client miss her meeting today because she was in the emergency room.  That was a good reason.  The trustee will file a Motion to Dismiss (or refer it to the U.S. Trustee’s office with a U.S. Trustee’s Recommendation for Dismissal), and I will have to object to that motion and move for a new 341 date.

    Then, when I get back to the office, I have another client tell me that he’s getting married in about a month, and the odds are pretty good that when we file today, we’ll draw a 341 date right on his wedding date.  I feel good about filing a motion to reschedule on this one.

    So yes, you can get it rescheduled, but it’s a lot of extra work for the attorney, most attorneys will charge you, and you need a really good reason.

  • December 2, 2013 — My income fluctuates because it’s seasonal.  How do you figure my income?

    Today In court I was at 341 Meetings for Chapter 13 cases, meeting with Kevin R. Anderson, the Chapter 13 Trustee for the State of Utah.  My client works construction, which means that his income is great in the summer, but the moment snow starts falling, his hours drop to almost nothing.

    The trustee asked my client about his income, and we had to explain that our income is seasonal, and we’ve used averages.  In bankruptcy, we base your income (for purposes of the Form 22 means test) on your last six months of income.  This way, even if your income fluctuates, we get a pretty accurate number.

    Unfortunately, if your income is great in the summer, then the last six months of income will appear too high when we file in November.  It takes some work to prove this.  The trustee is fairly reasonable to work with, and we were able to show that income is already dropping, making our chapter 13 plan a lot more manageable.  If we couldn’t prove that income was dropping, then my poor client would have to pay more money into his chapter 13 plan.

  • December 3, 2013 — I forgot to list some of my property in the bankruptcy schedules.  Should I tell my attorney, and if I do, will I lose it?

    So today in court my clients leans over to me and tells me that he forgot to list a car that he owns free and clear.  My immediate reaction is, “Oh crap!”  In bankrutpcy we can protect one car for each debtor, so long as their names are on title, up to $3,000 in value, based on Utah state exemptions for vehicles.

    But if we haven’t listed a car, we can’t exempt it, and I had already spent my exemptions on two other cars, so I was worried that the chapter 7 trustee would demand that we turn over the extra car to an auctioneer.

    My client then clarified that the unlisted vehicle was a 1990 Chevrolet Blazer that he purchased for $500 being held by an auto shop who had done over $1,500 worth of work on it and was holding it until they were paid.  With their possessory lien against the vehicle, I knew the trustee wouldn’t want it.

    However, in answer to the question, Yes, tell the attorney.  You may lose it, or he may be able to protect it.  But you don’t want to commit fraud and perjury on your bankruptcy paperwork.

    The Utah Code Section Title 78B Chapter 5 Section 506 in its entirety reads:

    78B-5-506.   Value of exempt property — Exemption of implements, professional books, tools, and motor vehicles.

                (1) An individual is entitled to exemption of the following property up to an aggregate value of items in each subsection of $1,000:

                (a) sofas, chairs, and related furnishings reasonably necessary for one household;

                (b) dining and kitchen tables and chairs reasonably necessary for one household;

                (c) animals, books, and musical instruments, if reasonably held for the personal use of the individual or the individual’s dependents;

                (d) heirlooms or other items of particular sentimental value to the individual; and

                (e) firearms and ammunition not included in other exemption categories in the amount of $250 per individual, and not more than $500 per household.

                (2) An individual is entitled to an exemption, not exceeding $5,000 in aggregate value, of implements, professional books, or tools of the individual’s trade, including motor vehicles to which no other exemption has been applied, and that are actually used by the individual in the individual’s principal business, trade, or profession.

                (3) (a) As used in this Subsection (3), “motor vehicle” does not include any motor vehicle designed for or used primarily for recreational purposes, such as:

                (i) an off-highway vehicle as defined in Section 41-22-2, except a motorcycle the individual regularly uses for daily transportation; or

                (ii) a recreational vehicle as defined in Section 13-14-102, except a van the individual regularly uses for daily transportation.

                (b) An individual is entitled to an exemption, not exceeding $3,000 in value, of one motor vehicle.

                (4) This section does not affect property exempt under Section 78B-5-505.

  • December 4, 2013 — I already signed my reaffirmation agreement, but I changed my mind.  Can I cancel (rescind) that agreement?

    Thank goodness yes.

    According to the terms of the reaffirmation agreement, you can cancel or rescind the agreement “at any time before the bankruptcy court enters your discahrge, or during the 60-day period that begins on the date your Reaffirmation Agreement is filed with the court.”  This means that you can cancel the agreement.  Even if you’ve received your discharge and the case is closed out, you can still cancel the agreement up to 60 days after the agreement was filed with the court.

    How to cancel it is the best part.  The court approved agreement simply states that “you must notify the creditor that your Reaffirmation Agreement is rescinded (or canceled).”  This doesn’t say that you have to file anything with the court, you just have to let the creditor know.

    Theoretically, you could call the creditor to cancel the agreement, but this is very iffy, since it’s hard to prove, so we like to send a letter to the creditor officially rescinding the agreement.

    So, yes, if you change your mind, you can cancel it (for 60 days after it’s filed).  After the 60 days runs, you’re out of luck, and you are liable for the full reaffirmation agreement amount, even if you now have buyer’s remorse.

  • December 5, 2013 — Can I get my chapter 13 plan payment lowered?

    Yes, but you need a pretty good reason to submit to the court.

    When we file a chapter 13, you plan payment is based on any secured payments you’re making (like car payments), plus any mortgage arrears we are paying back, and your plan may be paying back a pot of money to your creditors based on your income level at the time we filed.

    Getting the payment lowered can happen if we file a Motion to Modify Confirmed Chapter 13 Plan, but we usually need to argue that your income has gone down, your family size has gone up, or something has happened with the mortgage.

    First, if your income has gone down, we can move to reduce your plan payments if, and only if, you were originally paying a pot of money to your unsecured creditors.  Even then, we need to argue that the income loss is permanent, and not just a short-term, temporary loss of income.

    Second, if your family size has gone up (a new baby), we can reduce your payments, if and only if you were paying a pot of money to unsecured creditors.

    Third, if you have an approved permanent loan modification, or if you stopped making payments on your home and gave up on it and the mortgage company has been granted a relief from the automatic stay on you home, then we can move to reduce your plan payments if you had formerly been paying back mortgage arrears as part of your plan.

    So the circumstances must be permanent, and then we can make the attempt.

  • December 6, 2013 — What happens to a judgment lien on my house when I file a Chapter 7 bankruptcy?

    Short answer:  nothing.  The long answer takes a little explanation.

    A chapter 7 bankruptcy discharges your personal liability for any judgments against you.  So, let’s say that Bonneville Collections has a judgment against you for $10,000.  Your personal liability for that $10k judgment is wiped out.  However, the judgment remains attached to any real property you own, maybe.

    Prior to 2002, if a creditor received a Utah judgment against you, it would automatically attach to any real property you owned in that county.  There was a law change where the creditor had to take an additional step and physically record the judgment with the local County Recorder.  The creditor could record the judgment against a specific piece of property, or the judgment could be recorded against your name, and then it would automatically attach to any piece of real property in which you had an interest.

    So, let’s say you file a chapter 7, you have a judgment, it is properly recorded against you, and you have a home.  Then it is attached to your home, and the bankrupcy doesn’t get rid of it.  You have to take an additional step:  you must file a Motion to Avoid Judgment Lien on Real Property.  (This is not part of your normal bankruptcy, and every bankruptcy attorney, myself included, will charge you more to file and prosecute this motion).

    In a Motion to Avoid Judgment Lien on Real Property, you can strip, or remove the judgment lien from the home, so long as there was no equity security the judgment.  So if your home is worth $200,000 and you owe $210,000 on your mortgage, then there is no equity for the judgment to attach itself to.  Even better, if there is equity, Utah law protects your first $30,000 of equity, and the judgment lien can still be stripped off of the home.

    The actual bankruptcy code section at issue is 522(f)(2)(a), where the judgment lien can be stripped so long as :

    (2)

    (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—

    (i) the lien;
    (ii) all other liens on the property; and
    (iii) the amount of the exemption that the debtor could claim if there were no liens on the property;

    exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
    Just remember that this is not a normal part of your chapter 7 bankruptcy, and your attorney will charge you more.