Monthly Archives: September 2014

Can the city shut off my utilities (power/water/sewer) if I don’t pay my bill?

utilities shutoffI was surprised by this the first time I saw it, but yes, the city can shut off your utilities for non-payment.  The first time I saw this was in Utah during a brief summer heatwave, where the city of Eagle Mountain shut off electricity to one of my clients.  This meant that they didn’t have any a/c in the summer.  Not the end of the world, but it sure seemed barbaric at the time.  Personally, I sweat in any temperature above 70 degrees, and that shutoff would seem like the end of the world for me.

However, if you look at it from the city or utility company’s viewpoint, they shouldn’t have to keep providing services for free.  They have every right to stop delivery of a product (like water or electricity) if they are not being paid for that product.

If you file bankruptcy, it can stop the utility termination briefly, but you will have to renew service with the city under a new contract.  This new contract requires a much higher deposit.  In the aforementioned Eagle Mountain example, the clients had to come up with a $500 deposit to get their electricity turned back on. The city couldn’t use that new deposit to pay the old bill, but they had every right to charge a higher deposit.

This all came home to me when I saw the recent news article about the city of Detroit shutting off water service to residents.  19,000 homes lost water access, and the city was/is shutting off water service to about 350 homes a day.  It’s hard to believe, but yes, it happens in our modern society.

http://news.yahoo.com/u-bankruptcy-judge-allows-detroit-water-shutoffs-continue-135707328–business.html?soc_src=mediacontentstory

This summer Detroit began what some witnesses last week described as an “aggressive campaign” to pare down $90 million in overdue bills. After 19,000 homes lost water access, people from across the country sent gallon jugs to the city and residents protested in the streets.

Mayor Mike Duggan in August issued a month-long moratorium on shutoffs and implemented a plan to help low-income customers pay their bills that Rhodes called “bold, commendable and necessarily aggressive.”

Still, the plaintiffs said current water disconnections, which have run at a rate of around 350 per day since the moratorium ended, put public health at risk, hurt seniors on fixed incomes, and disrupted families with children.

They also said poor customers needed a more affordable plan than Duggan’s, adding that the injunction would fall during freezing-cold winter months when the department already refrains from disconnecting pipes.

What happens to my ebay shop when I file bankruptcy?

Same as any other business … we list it, value it, try to protect it, and use it to help calculate your household income.

When you file bankruptcy, you are required to list any assets you have.  Your asset list includes any businesses your own and/or operate.  If your business is profitable, we add that profit to your income, if it is losing money, we may even use it to reduce your household income.

Brick and mortar businesses (like a convenience store) need to list all of their inventory and equipment.  Equipment and tools of the trade can be exempted (or protected) up to $5,000 in value.  Inventory is never protected.  Virtual businesses, like an ebay shop, need to do the same thing.  Arguably, we can list your home computer and website as tools of the trade and protect them, but any inventory in your shop may be subject to a trustee turnover motion.  This means that if your ebay shop owns $10,000 in rare My Little Pony TM dolls, then the trustee could demand that you turn over those ponies so that he can sell them.  ebay shop

On the other hand, if people simply list their property on shop site and pay you a commission, then you do not own the inventory.  When you operate as a middle-man, never holding property but simply buying and selling it, you never actually own the inventory for long enough to create any real issues.

I have had clients try to conveniently “forget” that they had ebay shops.  Hiding an asset from the trustee is always a bad idea and seldom works.  Especially if it is an income generating asset.  Those paypal credits into your bank account show up when the trustee is reviewing your bank statement, and he will follow up with more questions.

What happens to my 401k loan in bankruptcy?

It depends on which type of bankruptcy.

In a chapter 7, you just keep paying on the loan.

In a chapter 13, it’s a little different.  You keep paying on the loan.  Unfortunately, if your loan term ends during the 36-60 months of your chapter 13 plan, your payment changes when the loan is paid off.  Once the loan is paid off, you get to start contributing that “extra income” to your creditors as part of a chapter 13 plan.  Chief Judge Thurman ruled in In Re Kofford, 12-29134, that once your 401k loan is paid off, you have additional money left over each month to pay your creditors.  This extra money then needs to be contributed to your creditors.

So, let’s say that you’re in a 60 month chapter 13 plan.  Your payment is only $100 a month.  But, you have a 401k loan that will be paid off in the next two years, and you’re paying $150 a month into that 401k repayment.  Then once those 24 months are up, you have to increase your chapter 13 payment up to $250 a month for the next 36 months of the plan.

This means that if you are considering bankruptcy, you should really talk to a bankruptcy attorney before you take out any kind of retirement loan.  Otherwise, it may make your bankruptcy much more expensive than it should be.

 

Should I start paying off some of my creditors before I file bankruptcy?

No.

By the time you are ready to file bankruptcy, you have realized that your financial situation is a mess, and you have probably developed a plan to deal with those creditors.  If you’re here, then bankruptcy is part of a plan.  Personally, I love using the Dave Ramsey “debt snowball” plan, where you keep making monthly payments on each debt, and when you’ve paid off the smallest one, you apply those payments to the next smallest one, creating a snowball of debt repayment that focuses a larger and larger payment on each of your debts in turn.

However, in bankruptcy, you face a few problems with this.

First, you may be paying off a debt that won’t survive your bankruptcy.

Yesterday, I met with a client who had minimal credit card debt, $348 of tax debt from 2008, and about $820,000 of medical debt due to a four week stay in the intensive care unit of one of our local hospitals.  Yes, $820,000!  He was hit by a drunk driver at night-time and lay in the street for hours until the sun came up and morning commuters found him blocking their paths with his body.  He was ready to go bankrupt and get his life back in order, and in anticipation of meeting with me, he had just paid off that $348 tax debt.  I didn’t have the heart to tell him that those taxes were old enough to be dischargeable, and he had just thrown $348 away.  I know, it’s not a lot of money, but it was a lot of money to him.

Second, you may be opening up your creditors to a lawsuit from the bankruptcy trustee.

A bankruptcy trustee can sue your creditors under a preferential transfer action if you made a large enough payment to them prior to filing bankruptcy.  Basically, this means that you preferred one creditor over all of the others, and it isn’t fair.  This normally happens when you pay Mom and Dad back that $1,000 they gave you to cover rent.  This opens up Mom and Dad to a lawsuit from the trustee for $1,000.  You can pay ongoing bills like cell phones, rent, insurance, but payments to most creditors will come under scrutiny from the trustee.

Third, you may be exposing your assets to the trustee.

Too many clients love to pay off their car loans first so that they own the vehicle free and clear and can carry a cheaper insurance policy on the vehicle.  Unfortunately, if you pay off the car, you may now have too much equity in the car, and you might lose it to the trustee in bankruptcy.  Make regular payments, but don’t lump-sum pay it off.  Additionally, if we still owe some money on the car when you go bankruptcy, you can reaffirm the debt (keep it), and you’ll get some positive credit reporting after your bankruptcy.

It is a great idea to manage your finances and organize debt repayment, but if you’re going bankruptcy, talk to your attorney.  Even better, talk to your attorney and then plan on starting the repayment plans AFTER you have filed bankruptcy.

 

Why do my students loans keep contacting me after my bankruptcy?

A client just asked me this question a few moments ago.  The short answer is:  they want to get paid.

The long answer is a little more complicated.  Student loans are generally non-dischargeable in bankruptcy.  There are ways to get rid of a tiny amount of student loan debt, and some (very, very, very few) people can even file adversary proceedings in their bankruptcies to discharge that student loan debt.  Generally, though, your student loans will survive your bankruptcy.  All of the Facebook ads about “new federal laws allows student loans to be forgiven” are generally NOT as awesome as they sound.

Although your bankruptcy probably won’t wipe out your student loan debt, it will stop them for a few months.  When you file the bankruptcy case, the court issues stay (stop) order automatically.  This stays any collection efforts from any creditors, even student loans.  The stay lasts for 3-4 months in a chapter 7.    They will not contact you, send collection letters, call  you at work, etc., during the bk case.

Once the court issues its discharge order, discharging your other debts, the students loans will start to contact you again.  They survived the bankruptcy, and they want you to starting paying those debts again.  You really should talk to them and either get on a repayment plan, or try for a forbearance, or do something to at least communicate with them.  Unfortunately, they won’t go away if you simply ignore them.

 

A creditor just called and said that they are initiating the legal process for garnishment. How long do I have until they garnish me?

I hear this a lot, and it’s usually a lie on the part of the creditor.

They might really want to garnish you, but the garnishment is generally not in place yet.

To garnish you, they have to have a judgment against you.  To have a judgment against you, they need to file a lawsuit against you.  So, unless the constable has served you with a lawsuit at the front door of your home, you probably haven’t been sued.  This means that they don’t have a judgment, and they cannot legally garnish you, yet.

Generally, it’s a bluff.  It doesn’t mean that they won’t start a lawsuit and eventually garnish you, but it takes some time.  For example, if I sued you today, I would serve you in a week, get a judgment in a month, file the garnishment paperwork, and garnish you in about 45 days.  That’s still 45 days away, and you have plenty of time to file bankruptcy in the mean-time to stop it.

On the other hand, if the creditor really does have a garnishment, they won’t be calling you.  They will contact your payroll and get it set up.  Hopefully your payroll department at work is friendly, and they will give you a head-up that your paycheck next Friday will be hit by a garnishment.  So long as we file bankruptcy before payroll processes that garnishment, we can still stop it.

 

I work out of state. Do I have to fly back to Utah for my 341 Meeting of Creditors with the bankruptcy trustee?

Not necessarily.

Ideally, you would plan on flying back to Utah for your one meeting with the bankruptcy trustee, but if you really can’t do it, there are other options.  Technically, you are required to appear at your 341 meeting, but that doesn’t mean that you must be physically present.

First, you can always move to reschedule your meeting.  Trustees are very flexible with this and will let you reschedule the 341 Meeting to a new date and time that fit your work schedule.

Second, you can move to waive the 341 Meeting requirement.  This never works.  Don’t try it.

Third, you can move to have your 341 Meeting conducted by interrogatory (written questions back and forth between you and the trustee).  I have never seen this and wouldn’t try it.

Fourth, you can move to have your 341 Meeting conducted telephonically.  This means that you and the trustee would speak over speakerphone.  He would be at the official 341 Meeting with any potential creditors asking questions over the speakerphone, and you would be somewhere else.  The difficulty with this is that you need to have a notary or court officer present with you at your location to identify you and review your social security card and driver’ s license.  No, you can’t just have a friend do it.  The trustee will require a notary or other court officer.  telephonic 341 meeting

I have had prisoners do it before, and the prison guard identified them over the phone.  The guard isn’t a notary, but since it’s pretty hard for someone to fake your identity in prison, the trustee accepted the guard’s statement over the phone.

The biggest problem with all of this is that is is obnoxious additional work on behalf of your attorney.  Your attorney will not do this for free, and you may find that it costs another $500 or so in additional attorney’s fees just for him to file the necessary motions to fit your schedule.  Don’t expect him to do it for free, because it takes substantial work on his part.

I owe my employer money, do I have to list him in my bankruptcy?

Technically, we have to list every one of your creditors in the bankruptcy.  However, I cannot control who you voluntarily pay back after the case has been filed.

That being said, you may want to stop payments for a month or so until after we meet with the bankruptcy trustee just to make sure that he doesn’t have any awkward questions on why we are preferring this one creditor over all of the others.

For example, today I had a client who worked at a law firm that practiced family law.  Her employer had been providing legal services for her daughter’s divorce with the understanding that my client would pay those services back out of her paychecks for the next few years (divorce is expensive).  Technically, I could list the employer in the bankruptcy and seek a discharge of those debts, but the employer would have every right to fire my employee if he suffered a financial loss because of her actions.

This was a chapter 13 case where the chapter 13 trustee almost never allows direct payments to creditors like this one.  However, at the 341 meeting of creditors, the trustee asked my client if she would be fired if she stopped paying the debt back, and my client responded that she would lose her job.  I am certain that the trustee will turn a blind eye to this small repayment of legal fees that my client must make to keep her job.

 

Is my income too low to file taxes, and how do I tell the bankruptcy trustee this?

Maybe.  If it’s low enough, you really don’t need to file taxes, but you should.

I am not a tax professional, and I am getting my information from a very helpful turbotax site here, which gives the following table:

Federal (IRS) Filing Requirements

Whether or not you need to file a return depends on your filing status, your age, and your gross income, which may or may not include Social Security benefits.

If your gross income is less than the amount shown below, you’re off the hook! You are not required to file a tax return with the IRS. But remember, if Federal taxes were withheld from your earnings, you’ll want to file a tax return to get any withholdings back.

Filing Status Age at December 31, 2013 Gross Income
Single Under 65 $10,000
65 or older $11,500
Married Filing Jointly Under 65 (both) $20,000
65 or older (both) $22,400
Under 65 (one) $21,200
Married Filing Separately Any $6,100
Head of Household Under 65 $12,850
65 or older $14,350
Qualifying Widow(er) Under 65 $16,100
65 or older $17,300

Exceptions

  • If you can be claimed as a dependent by another taxpayer, the income threshold for filing is generally lower than the chart above. For instance, children and teens who work must file a tax return only if they earn more than $6,100 a year.
  • If you are self-employed and your net earnings (income minus expenses) are more than $400, you need to file and pay self-employment tax. (You won’t receive credit toward Social Security benefits if you don’t report and pay this tax.)
  • Special rules apply for dependent children who have investment income. To learn more, read The Kiddie Tax.

So, if you’re making less than $10,000 a year and are not someone else’s dependent, then you really don’t need to file, but you still should.  You may qualify for the EIC or other tax credits.  You may get a refund of whatever taxes you did pay that year.  no taxes

As far as bankruptcy goes, we are required to give the bankruptcy trustee our last filed return, even if it was 5 years ago.  At the 341 Meeting of Creditors we give the trustee testimony that you didn’t have sufficient income to file recent taxes.  This is usually sufficient.  However, I recently had a trustee ask me to provide a Declaration or Affidavit from an attorney or tax professional that the debtors had no tax filing requirement.  I drafted up a declaration for my clients, signed it, and provided it to the trustee.

Can I cancel my gym contract with Gold’s Gym when I file bankruptcy? And should I be scared of URG?

Oh yes, definitely yes.

To put it very simply, there are two kinds of debts:  1.  priority debts (government type debts such as taxes, student loans, and child support) and 2.  everything else.  Priority debts usually survive bankruptcy.  Everything else can be discharged.

A gym contract falls into the “everything else” category.  Not only can you list the past due amount in your bankruptcy, but you can also list and cancel the ongoing contract with the gym.  Here in Utah, Gold’s Gym is a very active creditor.  When you fall behind on your monthly membership dues, you start receiving phone calls from Paramount Acceptance.  Soon, you will be sued by a collector with a name like a caveman, “URG”  (this is United Recovery Group). urg Then they start garnishing.  Gold’s Gym is a great gym, and as a collector, they are a very effective creditor as well.  If you don’t want to be clubbed over the head by URG, you are probably strongly considering bankruptcy.

Now let’s say that you want to keep your gym membership, then you can.  You can chose to keep this long term contract, but remember that if you have any past dues, they will require you to pay those up to current before you can go back to the gym.