Monthly Archives: October 2014

Does patting the eagle’s head bring you good luck in bankruptcy court?

Strange question, I know, but someone asked me this very question today.

Guarding the stairwell to the entrance of the Frank E. Moss Federal Courthouse, where the Bankruptcy Court for the District of Utah is located, is a carved eagle’s head.  Every time I go to court, I pat the eagle on the top of the head.  Another attorney asked me if it brings good luck.  I said, “I’m not sure, but it never hurts.”

In case you feel like you need a bankruptcy good luck charm, it will not hurt to pat the eagle’s head.  Below is a picture of the guardian eagle.  Ignore the lipstick mark someone left on his beak before I took the picture (some people must really love eagles).

20141017_104705

Where does Utah rank for bankruptcy filings per 1,000 in the U.S. for 2013/2014?

According to a recent article http://www.creditslips.org/creditslips/2014/10/bankruptcy-filings-are-low-but-not-everywhere.html by Bob Lawless, the District of Utah ranks 8th out of 90 judicial districts in the number of bankruptcy cases per 1,000 people.  utah is 9

bankruptcy filings per 1000

The image on the left shows the filing rate per 1,000 people between October 2013 and September 2014 in various judicial districts.

Now the article does NOT explain why there is a variation by district, not even when there is gross disparity between two districts with the same economics.  It hypothesizes that it may be in part due to the legal culture of the community.  For instance, some states don’t allow wage garnishment, or have wage garnishment curtailed.

On the other hand, here in Utah, collectors have a veritable cornucopia of tools available to collect and is a fairly creditor-friendly state.  If you fall behind on a debt in Utah, creditors can get a judgment against you and then garnish wages, or attach your home, levy bank accounts or tax refunds, or even do a writ of execution and come into your house, take your’s son’s xBox, and sell it to pay your debts.  In other states, you can protect your tax refund, not in Utah.  In California, you get a $75,000 wildcard exemption to protect anything you darn well please, even that bag of ancient Roman coins on the kitchen table — not in Utah.

Quite possibly, the pro-creditor laws here allow creditors to more actively pursue debtors, forcing more debtors into bankruptcy.  But honestly, I don’t know.

 

Will I lose my guitar or my children’s musical instruments when I file bankruptcy?

No.  (Unless they are really nice).

Let’s say that you own the musical instruments free and clear.  Utah law allows us to exempt (protect) up to $1,000 of their value.  (We can double this to $2,000 for a married couple).

Utah Code Title 78B Chapter 5 Section 506 states that:

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

Now what if you are a professional musician, or at least have a garage band which generates a little extra income on weekends?  Then we can protect up to $5,000 of your guitar, amps, etc as tools of your trade.  garage band

The same code section above provides that

(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.

Now finally, let’s say that you have a $10,000 piano, but it’s financed with Summerhays Music.  Then we list it in the bankruptcy, and if you want to keep it, you check a box saying that you’ll reaffirm the debt and keep making payments at the same interest rate, balance, etc.  So long as there isn’t too much equity (as protected above), you can keep the piano.

If you still have musical instruments above and beyond the value of those exemptions above, then you will lose them or have to pay their value to the bankruptcy trustee so that he can distribute the money to your creditors.

If I put my assets in a self-settled trust, can I protect them in bankruptcy?

Probably not.

This is not my area of expertise.  I generally do not represent clients who have substantial assets to protect, but I can still give you the basics.

A self-settled trust is a trust where you place your assets in trust for the benefit of yourself.  This is not a safe way to protect your assets, and in bankruptcy, it is grossly ineffective.

Whether you file a chapter 7 or a chapter 13 bankruptcy, the bankruptcy trustee has the power to avoid any trust transfer you made in the last 10 years.  In other words, let’s say you put your $50,000 gold coin collection into a self-settled trust and then filed bankruptcy 9.5 years later.  The trustee can avoid this transfer (take it back), and the $50,000 in gold coins reverts back to your personal ownership.  Then, the trustee can take them and liquidate them (sell them) to pay your creditors.

What’s worse is, since the assets were not titled in your name at the time you filed the bankruptcy case, you cannot apply any exemptions to those assets.  If we had been living in California on the date of filing, you could have protected that $50,000 in coins with the California $75,000 wildcard exemption.  However, since they weren’t technically “yours” on the day you filed, there is no exemption.

The trustee’s avoidance power comes from

11 U.S.C. § 548(e):

(e)
(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition, if—
(A) such transfer was made to a self-settled trust or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar device; and
(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.
(2) For the purposes of this subsection, a transfer includes a transfer made in anticipation of any money judgment, settlement, civil penalty, equitable order, or criminal fine incurred by, or which the debtor believed would be incurred by—
(A) any violation of the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c (a)(47))), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws; or
(B) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78l and 78o (d)) or under section 6 of the Securities Act of 1933 (15 U.S.C. 77f).

What happens if my employer ignores or refuses to honor a court garnishment of my wages?

Bad things.

After a creditor sues you and gets a judgment, they want to collect their monies.  If you are working, they send a Writ of Garnishment to your employer with very specific instructions.  If you don’t file bankruptcy, pay off the judgment, or work something out, your take-home pay is going to decrease by about 25%.

Sometimes, I have clients who are very close friends with their employer, or with Debbie in Payroll.  Debbie will “forget” to process the garnishment for a couple of weeks to give the debtor time to figure something out.  Unfortunately, by ignoring the proper Writ of Garnishment, your employer can get in trouble and Debbie may get fired.

If your employer refuses to answer a Writ of Garnishment, or misfiles it for a few weeks. and the creditor finds out, your employer may end up going to court on an Order to Show Cause, where they have to explain to the judge why they ignored the court documents.  Even worse, your employer may end up paying (personally):

1.  the value of the garnishment,

2.  the entire judgment,

3.  reasonable costs and attorney’s fees of the party trying to garnish you.

In other words, you employer may get hauled to court and have to pay your garnishment and additional legal fees that the creditor tacks on, all because they tried to “help” by ignoring a court order.  ignore garnishment

Utah State Court Rule 64(d) states in part that the garnishee (the company that received the garnishment):

… (j) Liability of garnishee.

(j)(1) A garnishee who acts in accordance with this rule, the writ or an order of the court is released from liability, unless answers to interrogatories are successfully controverted.

(j)(2)(A) If the garnishee fails to comply with this rule, the writ or an order of the court, the court may order the garnishee to appear and show cause why the garnishee should not be ordered to pay such amounts as are just, including the value of the property or the balance of the judgment, whichever is less, and reasonable costs and attorney fees incurred by parties as a result of the garnishee’s failure. If the garnishee shows that the steps taken to secure the property were reasonable, the court may excuse the garnishee’s liability in whole or in part.

 

I just moved. How do I change my address with the bankruptcy court?

It’s easy, but it does take more than a phone call.

When you file bankruptcy, you give the bankruptcy court a good mailing address so that you can receive court notices, including notices of your 341 Meeting of Creditors and any other hearings that might take place.  If you move, you can forward your mail to the new address, but you should really file a Change of Address (“COA”) with the court.

It is a simple form found on the court’s main website.  Here in Utah, we use this form:  http://www.utb.uscourts.gov/clerks_office/forms/addresschng.pdf

That’s it.  You can even mail it in.

I filed my bankruptcy pro se (without an attorney). Can I hire an attorney now to review it and go to court with me?

Yes, but most bankruptcy attorneys hate those kinds of cases.

Putting together a bankruptcy petition can be fairly routine for a bankruptcy attorney, so long as he has the proper paperwork, taxes, paystubs, etc. and has interviewed the debtors a few times before everything is prepared.  On the other hand, stepping into a case mid-stream is an awful nightmare.  It is very hard to clean up someone else’s mess, and most attorney steer clear of jumping into a pro se case.

That being said, yes, if you file by yourself, you can always hire a bankruptcy attorney after the fact to review everything, make changes, and even go to court with you.  Nearly every week in court, I see pro se chapter 13s before the judges who say that they are looking for an attorney, and the judge usually even gives them more time to hire an attorney and get the paperwork cleaned up.  Unfortunately, some documents MUST be filed by certain deadlines, or the case is dismissed automatically, whether or not you hired an attorney to clean it up for you.

Personally, I took a case like that recently.  I was at a 341 Meeting of Creditors in front of a very good but fairly explosive bankruptcy trustee.  I gave a couple of pro se debtors some free advice in the hallway before the hearing and then went in and sat down.  The pro se debtors had not filed all of their documents, the case was a mess, and he exploded.  He moved to dismiss their case and publicly berated them for wasting his time.  They tried to file the remaining documents, but the deadlines had passed.  A few weeks later they called me and asked for my help since I had been nice in the hallway.  I took their case, and we realized that it was a good thing that it was being dismissed, because there was a mistake that was going to cost them at least $6,200.  We filed a newer and cleaner case, and they flew through it without a problem.

 

Can you re-open a bankruptcy case to avoid/remove a judgment lien on your home? (Video)

Yes, yes you can.  I have covered this here:  http://robertspaynelaw.com/myutahbankruptcyblog/2014/03/27/what-happens-to-a-judgment-lien-on-my-house-when-i-file-chapter-7-bankruptcy-can-i-strip-remove-avoid-the-judgment-lien/

However, it was time to make another video on the topic because nothing teaches you humility like watching and posting a video of yourself on Youtube.

My income just dropped. Do I qualify for a chapter 7 bankruptcy? In re Lanning

Maybe.

In bankruptcy, the dividing line between a simple chapter 7 and a complicated chapter 13 repayment plan can be whether you are above or below the median income.  We normally run a 6 month average of your income and apply it to a means test to see where you fall on the median income line.

This morning I had a client whose income recently dropped from $110,000 to $40,000 a year.  That $70,000 loss of income hurt, and he was considering bankruptcy.  If I apply the 6 month average to his income, he is still above median, but that doesn’t mean he’s stuck in a high repayment chapter 13.  lanning

We can make a “Lanning” argument that his income dropped and won’t be going back up.  Then, he qualifies for a more simple chapter 7 case.

The Supreme Court heard this issue in Hamilton v. Lanning, 560 U.S. ___, 130 S. Ct. 2464 (2010), in which a debtor’s current monthly income (6 month average) was much higher than her projected disposable income looking forward.  The Supreme Court held that:

Consistent with the text of §1325 and pre-BAPCPA practice, we hold that when a bankruptcy court calculates a debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.

In other words, if the projected disposable income is virtually certain at the time of confirmation, the new income is the determining factor the the means test and any repayment plan.  So if your income has dropped and it isn’t going back up any time soon, then you use your new, lower income figures.

Can a creditor garnish my student loan money/Pell grant/Financial Aid/assistance/work proceeds in my bank account?

No.

Your student loans, Pell grants (and others), and work assistance are exempt, or protected, under Federal law, regardless of which state you live in.  However, if you mix these monies with other monies, they could lose their exempt status or be hard to trace.  student loan garnishment

For instance, let’s say you deposit a $5,000 student loan in your bank account, have a paycheck deposit on Friday of $1,200, spend $1,500 on rent, and then a creditor tries to garnish the money in your account.  What money is he garnishing?  Is it protected student loan money or non-exempt wages, or both?

Under tracing rules, you should be able to argue that your wages went to pay rent first, but it’s a hard argument.  It is hard to trace which money is spent where unless you keep it separate.  The safest way to do this is to deposit your financial aid into a separate account.  Then it’s easy to show that ALL money in that account is exempt from creditors.

The federal law that protects your financial aid is 20 U.S. Code § 1095a – Wage garnishment requirement which states that:

(a) Garnishment requirements
Notwithstanding any provision of State law, a guaranty agency, or the Secretary in the case of loans made, insured or guaranteed under this subchapter and part C of subchapter I of chapter 34 of title 42 that are held by the Secretary, may garnish the disposable pay of an individual to collect the amount owed by the individual, if he or she is not currently making required repayment under a repayment agreement with the Secretary, or, in the case of a loan guaranteed under part B of this subchapter on which the guaranty agency received reimbursement from the Secretary under section 1078 (c) of this title, with the guaranty agency holding the loan, as appropriate, provided that…
(d) No attachment of student assistance
Except as authorized in this section, notwithstanding any other provision of Federal or State law, no grant, loan, or work assistance awarded under this subchapter and part C of subchapter I of chapter 34 of title 42, or property traceable to such assistance, shall be subject to garnishment or attachment in order to satisfy any debt owed by the student awarded such assistance, other than a debt owed to the Secretary and arising under this subchapter and part C of subchapter I of chapter 34 of title 42.