Monthly Archives: March 2014

What happens to a judgment lien on my house when I file Chapter 7 Bankruptcy? Can I strip, remove, avoid the judgment lien?

  • 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.  judgment lien

    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.

Do I have to reaffirm my car loan to keep my car?

  • If you want to keep it, probably yes.

    Prior to the BAPCA (the bankruptcy law changes in October of 2005), you could “drive through” or “ride 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.

What happens if I don’t give the bankruptcy 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.

Can you pay the bankruptcy court filing fee in installments after you file the bankruptcy?

  • 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.

Does a tax refund anticipation loan through HR Block protect my tax refund from a 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 bankrupt, 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.

Can you get a loan modification while you are in an open bankruptcy case?

  • Definitely yes.  Bankruptcy is often just a bandaid you put over the foreclosure sale until you get a loan mod approved.  

  • 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.

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.

What documents do you need for 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.

What do you do with your tax refund before you file bankruptcy? How do you spend it?

  • So what do you do if you don’t want to lose your refund?:  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?  tax refund

    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;

How much of my tax refund will the trustee take?

  • In September 2013, I was at a 341 Meeting of Creditors, and the trustee directed my client to provide her with a copy of his 2013 taxes (when he files them in a few months) 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 was demanding 9/12 of his tax refund he receives next April.  If he filed in August, it would’ve been 8/12, June 6/12, etc.  And if you file in January, February, March or April before you receive your refund, you’ll lose the whole thing.

    (In a Chapter 13, 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.