Monthly Archives: April 2014

Can a creditor garnish my unemployment benefits before I file for bankruptcy?

No.

Your unemployment benefits are exempt (protected) from garnishment, unless you are being garnished for back taxes, child support/alimony, or for overpayment of unemployment benefits.

Utah Code 78B-5-505  protects those benefits, and states, in part:

78B-5-505. Property exempt from execution.
(1) (a) An individual is entitled to exemption of the following property:
(i) a burial plot for the individual and the individual’s family;
(ii) health aids reasonably necessary to enable the individual or a dependent to work or sustain health;
(iii) benefits the individual or the individual’s dependent have received or are entitled to receive from any source because of:
(A) disability;
(B) illness; or
(C) unemployment;

So, no, a creditor cannot garnish your unemployment.

But, if that money is deposited into a joint account with your spouse who is working, the creditor could garnish that money from the bank account and then dare you to prove to the court that the money had not been co-mingled (which may have made it lose its exempt status).  It is safest to deposit your unemployment directly onto a card, or deposit it into an account which has no other monies in it.

What happens to my term life insurance policy when I file bankruptcy?

Nothing.

Your term life insurance policy has no cash value, which means that we have no danger of losing it in the bankruptcy.  So long as you keep making your regular monthly payments, you can keep the policy going throughout your bankruptcy and after you receive your discharge.

The reason people worry about this relates to some whole life insurance policies, which are really investments that have a cash value if you wanted to cash out the policy and use the money today.  In most cases, the cash value is not safe in bankruptcy, and a bankruptcy trustee could order you to liquidate, or cash out, the whole life policy so that he can use the money to pay your creditors something from the bankruptcy estate.

Term life insurance policies are different because you cannot cash them out.  They have virtually no value unless someone dies and there is a large payout from the policy right before the case is filed or during the time that your case is open.

How do you make sure that all of my creditors are listed in the bankruptcy?

Honestly, I make you do your homework.

You track down your creditors as follows:

1.  keep copies of your collection notices and lawsuits,

2.  keep copies of your credit card and medical bills.

3.  get a free copy of your credit report.

4.  repeat the steps above.

Before you file bankruptcy, you fill out a packet of paperwork that asks for a list of all of your creditors, whether they are secured, priority, or unsecured creditors.  I also ask for the names and addresses of anyone you have a contract or lease (for example:  Living Scriptures, Gold’s Gym, or your cell phone plan).

If can be confusing trying to list all of your creditors, because creditors sometimes transfer or sell off your account to other collection agencies, who, in turn, may transfer it to another collector.

You can also get one free copy of your credit report each year online.  I usually send people to www.annualcreditreport.com.

Once we have a list of your creditors, we can file the case.

If you discover any creditors after we file, you can still add them to your case while it’s open.  The court charges $30 to add creditors.  Now remember that they charge $30 whether you add one creditor or a batch of 20, so don’t do it piecemeal.  Add your creditors in bunches;  it will save you money.

What happens if I miss my chapter 13 payment?

Probably nothing, if your case has already been confirmed.

If you case has been confirmed (approved by the Court and chapter 13 trustee with a court order), then you are required to make monthly payments from 36-60 months, depending on your plan.  If you miss one payment, the trustee will send you a letter.  If you miss two payments, you’ll get a strongly worded letter threatening a motion to dismiss.  And once you miss that third payment, you receive a motion to dismiss.  Even then, your attorney may be able to object and move to allow you to catch up on those payments.

So, missing one payment usually isn’t the end of the world.

On the other hand, if you miss a payment before you case gets confirmed, it can hold up or even stop the confirmation process.  You case can be thrown out with a motion to dismiss for that one payment.  Prior to confirmation, you really need to make those payments.  (Post confirmation too, but you get a little leeway).

Plus, your attorney gets paid out of those payments to the court each month, so he definitely wants you to keep up on your payments.

How does the bankruptcy trustee determine what my car is worth?

It would be nice to say that he’ll take us at our word, but he doesn’t.

We generally list your car value according to either a Kelley Blue Book (private party value or trade-in value) value or according to a NADA Guide (average trade-in value).    However, at the 341 Meeting of Creditors, the trustee will ask us what we honestly think the car is worth.  If your car needs work, we try to list that in your Schedule B Personal Property in the bankruptcy.

For instance, we may list a 2001 Ford Escort as having a value of $440 for an average trade-in value according to the NADA.  However, the clean retail value is $2,190.  So, we would list the 2001 Escort as follows:

2001 Ford Escort …. value $400

(230,000 miles, needs work including body damage and new front windshield).

Exemption claimed…. $3,000

However, if the trustee objects to our value, he can order us to take the vehicle to an appraiser to get a fair appraisal.  Here in Utah, the bankruptcy trustees generally use Erkelens & Olson to value vehicles.  If we are really worried about the value of the car, we can even send you to the auctioneer prior to filing the bk, and he will eyeball it and give you a fair estimate, even a written estimate, for free.  At the 341 Meeting, we can show that appraisal to the trustee.

If the car is worth more than the exemption limit ($3,000 in Utah), the trustee can order you to turn over the vehicle to the auctioneer, and the auctioneer will sell it.  He will pay you the first $3,000, and the rest will go to the bankruptcy trustee.  We can also offer to pay the trustee the nonexempt portion of the vehicle (the amount over $3,000 of equity) and keep the vehicle.

So basically, we list the Kelley Blue Book or NADA value and hope that’s enough.  If not, the trustee will use an auctioneer to determine value.