Monthly Archives: August 2014

 Does a school/college/university violate the bankruptcy automatic stay or discharge injunction by refusing to provide a transcript because tuition or fees remain unpaid?

Probably yes.  This means that you can probably get your transcript or diploma from a school after you file bankruptcy, even if you still owe them for tuition or school fees.

In 2009, the 7th Circuit Court of Appeals heard a bankruptcy case called  In re Kuehn, 563 F. 3d 289, 294 (7th Cir. 2009).  In this case, the court heard the issue of whether a school could passively refuse to give a transcript to a former student who had listed the school fees/tuition in her bankruptcy. She demanded the transcript, and the school refused until she paid her fees.  diploma in bankruptcy

The school argued that it was passively resisting by not turning over the transcript.  Her attorney argued that by refusing to turn over the transcript until the school received payment, the school was effectively trying to collect a debt listed in the bankruptcy.  This would be a violation of the automatic stay in bankruptcy (which stops creditors from collecting against you while the case is open.  This would also be a violation of the court’s eventual discharge order discharging the debt and prohibiting creditors from trying to collect on that discharged debt.

Short answer:  she won and the court found that “The University’s refusal to honor that right until Kuehn paid her back tuition was an act to collect a debt and thereby violated the automatic stay and discharge injunction. “

 

 

What will happen to my security clearance when I file bankruptcy?

Hopefully it will stay the same or get better.  You may lose if it you do NOT file bankruptcy.

Financial difficulties are a warning flag when you are up for security clearance review.  I have filed many bankruptcies for servicemen and servicewomen whose security clearance was in jeopardy because they were in collections and were facing garnishment.  Their local JAG officers advised them that they either needed to work out payment arrangements, file bankruptcy, or lose their security clearance until the issue was resolved.  I am genuinely surprised (but secretly pleased from a competition standpoint), that the JAG offices won’t file free bankruptcies for servicemembers.

This does not mean that filing bankruptcy is a panacea which will save your security clearance, but it will help resolve all of those debts in collections.  A bankruptcy security clearance holder is not as easy to manipulate or bribe as a person facing garnishment desperate for money because of collections.

The odds that the Soviets or the Red Chinese will come pay off your past-due Verizon phone bill in exchange for military secrets are pretty small, but it still makes you a security risk.  (Yes, I still use terms from the 80s).

If you don’t file bankruptcy, you may end up losing your clearance, and whether you’re on active duty or a military contractor, this is a bad thing;  you can’t work.  security clearance

If you would like to hear it from the horse’s mouth, the United States Air Force Academy’s Legal Office has a section on bankruptcy.  It states:

Will Bankruptcy Affect My Security Clearance?
The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer here, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.

Should I pay off my girlfriend’s title loan on her car before she files bankruptcy?

No.

Under Utah law, I can protect up to $3,000 of equity in a vehicle with your name on the title.  If the car is worth more than $3,000, you may lose it or have to “buy back” the equity from the bankruptcy trustee by making a payment for the value of the car over $3,000.  However, if you have a loan against the car. that sucks up the equity, and you usually don’t have to pay the trustee to keep your car.

Today I received a call from a couple where she had a car worth $10,613.  She had just taken out a title loan for $6,000 with an interest rate of 215%.  The boyfriend wanted to pay off that title loan before she filed bankruptcy.  If he paid it off, she would own a car worth $10,613 free and clear.  When she filed bankruptcy, I could protect $3,000.  The chapter 7 trustee would then demand that she pay him the unprotected $7,613 or turn over the car to his auctioneer.

If we left the title loan intact, we could file the case and reaffirm (keep) the title loan.  $6,000 title loan = $3,000 = $9,000 protected.  Then, she would only have $1,613 left exposed in the car.  The trustee would take payments on this $1,613 instead of demanding the car.

He then wanted to know what would happen if he paid it off and she transferred the title to him.  This is bad.  This would be a fraudulent transfer for no value.  The trustee would discover this when he ran a TLR (title search).  He would then deem this a fraudulent transfer and sue the boyfriend for the title to the vehicle.

On the other hand, the boyfriend could buy the vehicle from her and pay off the title loan in the process.  However, he would have to buy it for close to fair market value, money would have to pass hands, and then she would have to spend it all before we filed the bankruptcy.  Even then the trustee may look at this transfer to determine if it was a fair or “arms-length” transaction.

Short answer:  don’t pay off secured loans before you file bankruptcy.  It exposes the equity in the collateral to the trustee’s grasp.

What happens to my co-signer on my car loan when my car gets repossessed and I file bankruptcy?

They get stuck with the whole bill.

Your co-signer assumes full liability on your loans when they sign up as a co-signer.  Technically, the credit card, bank, credit union, etc., can enforce joint and several liability against you both.  This means that either one of you is liable for the whole debt amount.

So, if a car gets repossessed, the bank can sue either one of you for the remaining deficient balance after they sell the car.  If you file bankruptcy, you can discharge this debt, but your co-signer hasn’t filed bankruptcy.  They are liable for the full amount, and no amount of phone calls or explanations from you will absolve them from that liability.  Often, when one co-signer files bankruptcy, it drags the other co-signer into bankruptcy as well as creditors begin to collect against the non-bankruptcy party.

The best solution to this is to never co-sign for anyone on anything.  In practice, this doesn’t work.  You may decide to co-sign on a car for your live-in girlfriend of the past 4 years, but when she moves out, you’re on the hook.  You may co-sign with your husband, but sometimes marriages end.  I have filed countless cases where mom and dad have co-signed on a huge new F350 for their son’s fledgling construction business.  It happens, and when you go bankrupt, mom and dad are left holding the bag.

There is nothing that prevents you from contacting the bank and making payment arrangements so that the bank does not collect on your co-signer, but you would have to do this after bankruptcy. If you do this before bankruptcy, you are making a pre-petition transfer to a now unsecured creditor, and this is a bad thing.

 

More on car valuation and bankruptcy: will the trustee reduce the value of my car based on the repairs it needs?

Maybe.

Here in Utah, we can protect $3,000 of the equity in your car or truck when you file bankruptcy.  In a chapter 13, if your car has more equity than I can protect, then you’ll need to pay that to your creditors.  In a chapter 7, If you have more than $3,000 of equity, then you’ll either need to pay that amount to the trustee over the three to six months that your case is open.  If you can’t “buy back” that equity from the trustee, then you’ll have to give it to his auctioneer so that he can sell it.  He’ll pay you your $3,000 from the sale proceeds and use the rest to pay your creditors.

As for valuation, there are a lot of factors he’ll look at.  He may use NADA or Kelley Blue Book, he may order you to take it to the auctioneer for appraisal, or he may accept our testimony on the bankruptcy schedules if we’re detailed enough.

So, let’s say your car needs some work.  We can list that in the bankruptcy schedules to devalue it in the eyes of the trustee.  He may want to see a picture of body damage.  He may want to see an estimate from an auto repair shop.  For instance, pictured here is my 2000 Honda Odyssey.  KBB value of $2295.  But, it needs work.  If I list it as:

2000 Honda Odyssey (needs work) ….. $1,500

the trustee will have follow-up questions.

But if I list is as:

2000 Honda Odyssey (will not pass emissions, needs EGR valve replacement and flush EGR system = $800 in repairs) …. $1,500

then the trustee most likely won’t ask for a written estimate or want to take it to an auctioneer because the details were that good.

That’s one of the reasons you really need to use an attorney to file your bankruptcy:  the details make all the difference in your bankruptcy schedules.

 

We are raising our grandchildren. Can we claim them as dependants for our bankruptcy?

Usually yes.

In bankruptcy, we count “heads on beds,” regardless of whether or not you have legal custody.  I often have a situation where grandma and grandpa are raising the grandchildren while the actual parents are incarcerated, out of country, or otherwise missing in action.  The grandparents never actually filed the necessary court paperwork to establish themselves as legal guardians, but for all intents and purposes, they’re raising the children.  In this situation, I count the children as part of the overall household.

This matters when you are running a 6 month average of income in the bankruptcy means test.  Without the children, your income may be too high to file a chapter 7, but with the children, their expenses may drive you under the median income, and you qualify for a more simple Chapter 7 case.

I am not a CPA or even a tax accountant, a tax professional, or someone who can give you any tax advice.  That being said, I know that if you’re supporting and raising the children, you can probably even claim them for taxes, whether or not you have legal custody.

How many years from a chapter 13 to a 7, or from a chapter 7 to a chapter 7 bankruptcy discharge?

This is a complicated question, and unless you’ve filed bankruptcy in the past 8 years AND received a bankruptcy discharge, it does not apply to you.

If you want to discharge your debts in a new chapter 7, you have to wait for 8 years from the date of filing the last Chapter 7 (that gave you a discharge).   If you had a discharge in a 13, then you have to wait 6 years from the date that Chapter 13 was filed.  (Unless that Chapter 13 paid either 100% of the unsecured claims or paid 70% of the unsecured claims and was proposed in good faith).

If you want to discharge your debts in a Chapter 13, then you have to wait two years from the file date from your last 13 that got a discharge.  If you want a discharge in your Chapter 13 after filing a 7, then you have to wait 4 years from the file date of that Chapter 7.

Here is a handy chart that someone sent me (I have no idea who put it together, but it is a good one):  time between bankruptcies

What happens to my minor children’s savings accounts (college funds) when I file bankruptcy? Or, can I give assets to my children to protect them?

You lose them.

Well, in a chapter 7 you lose them.  In a chapter 13, you have to pay their value to your creditors as part of your chapter 13 plan.

I know, you want to argue that it is their money which they have worked for and saved up.  That doesn’t matter.  Anything your minor children “own” is actually your property.  Otherwise, you could transfer the title of your home to your 3 year old and effectively protect it from your creditors, since it’s his house now, and not yours.  This may seem like a harsh example, but it is the bankruptcy trustee’s job to look for unprotected (nonexempt) assets which he can seize and use to pay your creditors.  Anything of value you’ve given to your children (like cash in a savings account) is something that you may lose in the bankruptcy.  giving assets to minors

That being said, so long as the accounts are small, the trustee will probably consider them de minimus and leave them alone.

You may want to argue that grandma and grandpa gave them that money for college.  If they’re a minor, then it’s still your money.  It may be protected if the money has been slowly placed in a 529 college savings plan, but this is not the post to discuss that in detail.

The short answer is that anything your children own is YOUR property, and you had better discuss it with your attorney to determine whether or not it is protected.

I run a small business. If I file chapter 7 bankruptcy, will I lose the business?

Maybe.

I know one longstanding bankruptcy trustee here in Utah who has told me repeatedly that if you are running a business, you’d better file a chapter 13.  If you file a chapter 7, he considers it his duty to shut it down and liquidate the assets.  In practice, however, it’s not that simple.

It really depends on the kind of business, and this really, really needs an independent attorney review to tell you if you are okay or not.  If your business is a home-based seamstress business, you’re not going to lose it unless you have some amazing quilting machinery worth more than the $5,000 exemption.  On the other hand, if your business is managing your $10,000 a month income stream from a group of Nu-Skin renewals, then the trustee might take those assets off and sell them, leaving you with nothing.  In the middle is a lawn care service.  You may lose the trucks and equipment if you have employees, or you may be okay if it is just you and a trailer with your single lawn mower and weed eater.  business sale

Basically, you may be okay, or you may lose everything, and it’s hard to answer except on a case-by-case basis.

 

 

I just got remarried. Will my new husband/wife lose their car and house if I file bankruptcy?

No.

When you file bankruptcy, we will have to count his income as part of your household income, but not his assets.  Those assets which he acquired prior to your marriage are his sole and separate assets.

So, let’s say that you have $50,000 of medical debt and need to file bankruptcy.  You get married, and your spouse has a home with $100,000 of equity.  What happens to the house?  Nothing.  It was his asset prior to this marriage.  The only caveat would be if he put you on title right after you got married, and if that’s the case, then you’re in trouble.  new spouse assets

On the other hand, let’s say you have been married for a year, both working full-time, and you buy a car free and clear worth $10,000, but you put it in his name only.  That doesn’t protect it.  This is an asset you acquired after getting married.  You paid for it with joint marital assets.  Putting it solely in his name does not change the fact that you both own it jointly.  If you filed a single bankruptcy, the trustee would still consider that $10,000 car as property in which you own a 50% interest.