What happens to my 2018 tax refund when I file bankruptcy?

You lose it unless you receive it and spend it first.

That means that if you are receiving a large refund, you’ll probably want to hold off on filing bankruptcy until February or March of 2019.    

In other words, if you are contemplating bankruptcy, you should probably figure out how much of a refund you’ll be getting before you pull the trigger on any bankruptcy filing.  That doesn’t mean that you should drag your feet on getting the bankruptcy prepared.  You should still call today, meet with a bankruptcy attorney (like me), fill out the paperwork, take the online class, and be ready to file.  But, you won’t file until after you’ve received and spent that refund.

And yes, you can definitely use that refund to pay your attorney’s fees for the bankruptcy.

Just remember that you want to receive it and spend it before we file.  Don’t pay off friends or family!  Call me if you have any questions on how to spend it.  You can even text me on a Saturday at noon as you’re standing in an RC Willey trying to decide if you should purchase the new $800 bunk bed set for the twins (yes, you can). You can text me at 801-787-8860.

Here is a rehash of my post on this same issue last year (and the year before):

What happens to my 2017 tax refund if I file bankruptcy in 2018?

What happens to my 2016 tax refund when I file bankruptcy?

It’s that time of year again where I have to answer the phone and tell people that I don’t want their money until February or later because of tax refund season.  It makes a lean December/January in our household, but it’s the only way to protect my clients.

(I am cutting and pasting from earlier posts, so please forgive the repeat information).

So let’s say you get your refund February 1, 2016.   What do you do?

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;

There are other items you can spend the money on, and this is by no means comprehensive, but this should give you a good idea on how to spend it.  If you have questions on what to use it for, ask your attorney;  that’s what he’s there for.

What are the median income figures for bankruptcy in Utah (November 2018)?

Basically, if you are over, then you are a chapter 13.  If you are under, then you are a chapter 7.

The United States Trustee (UST) just updated the income figures on November 1, 2018.  Now remember that these numbers can be adjusted by child support payments (received or made), larger mortgages, huge tax debt, etc.  It is a gross overgeneralization to say that if you are over that figure then you MUST be a chapter 13, but this is the baseline we start with.  That being said, here are the current figures for Salt Lake County that we use on our Form 122 (6 month average of current monthly income and disposable income):

Single:      $61,044

Married:    $66,641

Married with 1 child:   $76,707

Married with 2 children:  $86,717

Married with 3 children:  $95,117

Married with 4 children:  $103,517

Married with 5 children:  $111,917

Married with 6 children:  $120,317

Married with 7 children:  $128,717

Married with 8 children:  $137,117

Married with 9 children:  $145,517

Married with 10 children:  $153,917

If you have more than 10 children, you’re probably going to be below median.  I have 11 children, and I know how expensive that can be.

Will bankruptcy discharge my parking tickets?

No.  

A chapter 7 will not discharge your parking tickets.

A chapter 13 will discharge your parking tickets, but only if you pay them off in full over your 3-5 year plan.

Parking tickets fall into the priority debt category of bankruptcy.  Priority creditors generally are not discharged in bankruptcy.  Under the Bankruptcy Code, 11 U.S.C. § 523(a)(7), these include:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt…

(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit,

A ticket is a fine or penalty payable to and for the benefit of a governmental unit.  The ticket pictured above is a fine/penalty which I now get to pay to the City of Salt Lake.

There are some exceptions, but as a general rule of thumb, you will have to pay those parking tickets.  Now, if you’ve lost your license because of payments issues, bk may help, but that’s a different issue:  https://robertspaynelaw.com/myutahbankruptcyblog/2014/08/12/can-i-get-my-suspended-or-revoked-drivers-license-back-after-i-file-bankruptcy/

Now that I have my bankruptcy discharge, can they still report me on ChexSystems and deny me a bank account?

No, but it’s a mess to clear it up.

Bankruptcy may discharge your debts, but it doesn’t necessarily clean up your credit.  That’s something you’ll have to watch like a hawk to clean up and improve.    

Bankruptcy can generally discharge the debt you owe on an overdraft bank account, or any bank account where you had a negative balance. The problem is that the creditor probably listed you on something called Chex Systems (or Telecheck, or SCAN), which are

Chex Systems, Inc. (ChexSystems) is a nationwide specialty consumer reporting agency under the federal Fair Credit Reporting Act (FCRA). ChexSystems’ clients regularly contribute information on closed checking and savings accounts.  See Chex Systems front page here.

Once you’re listed on that database, it is very hard to get a new bank account, anywhere. If you find that you are still listed on Chex Systems (or the others) after your bankruptcy discharge, you will need to:

  1.  Get a copy of your Chex Systems Report,
  2. Dispute anything that still shows a balance, and then
  3. Give them 30 days to clean it up and take off the negative reporting.

99% of the time, this should take care of the problem.  If it doesn’t, then you get to jump through hoops to clean up your credit report and/or Chex Systems.

As I was looking for information on how to clear up Chex Systems, I found two excellent articles that you should probably cross reference:

http://www.bankruptcylawnetwork.com/after-bankruptcy-what-should-i-now-do-with-chex-systems-inc/

and

https://www.bankruptcytruth.com/learning-center/credit-report/315-how-to-dispute-a-chexsystems-after-bankruptcy/

Can a creditor come repossess my car after I file a chapter 7 bankruptcy?

No, but sometimes they do.

When you file a chapter 7 bankruptcy, you file a statement of intention with the court letting your creditors know if you’ll be keeping your secured loans (like car loans and mortgages).  You keep making payments on these loans, eventually sign a reaffirmation agreement, and the loans survive bankruptcy.  

However, sometimes people are behind on car payments and file a bankruptcy with the intention of surrendering the car in bankruptcy and wiping out the debt. Usually, the car lender will give you 1-3 months before they repossess.  They are hoping that you’ll change your mind, reaffirm the debt, and keep making payments.

Sometimes, clients even file the case right before a repossession, hoping to stall the repossession for a few more months so that they can drive the car rent free while they look for something else.  Just this morning, a client contacted me asking if she should worry about a repossession in the middle of the night.  She is about 4 months behind on her truck, we filed a chapter 7, and she will be surrendering it back to the lender when they contact me to make pick-up arrangements.

Here is the conversation:

Client — Will they just randomly pick it up though? We have carseats etc I’m worried about lol. Or do they have to give us some sort of notice?

Me — Technically, they should file a motion for relief from stay to repossess the vehicle, but they usually won’t in a chapter 7. At the meeting of creditors, the trustee directs debtors to surrender their vehicles that they aren’t reaffirming. Relying on this, creditors will come repo even without a motion for relief.

Even worse, some really nasty lenders will come repo the day after we file bk knowing that even if I file a motion for sanctions, I would have to show that not only had we become current, but that we were making ongoing payments.

That being said, usually everyone plays nice and contact me before the repossess a vehicle.

So yes, they should file the motion, but they usually don’t (in a chapter 7).  About 90% of the the time the creditor will contact me, ask for permission to contact you, and then they’ll call to make pick-up arrangements.  Some creditors even ask us to simply drop off the vehicle with the keys at the nearest bank/credit union.  The other 10% of the time, they come in the middle of the night.  It is disconcerting, but we can still wipe out the debt, so there are no repossession fees.

Does it matter if I let my creditor get a default judgment before I file bankruptcy?

You’ll hate this answer:  it depends.

If you let a creditor get a default judgment against you, it is not the end of the world.  Bankruptcy will generally wipe out your liability on that default judgment.  You can usually file your bankruptcy quickly enough to stop any kind of collection even if the creditor gets a judgment.  

However, here are some bad things that can happen if you wait to file bankruptcy until after the default judgment (some of these happen immediately, some take time):

  1.  garnishment (takes about 2 weeks after the judgment) … If the creditor knows where you’re working, he will file garnishment paperwork and start hitting your paychecks for about 25% a paycheck.
  2. negative credit (immediate) … Even when the bankruptcy discharges your liability for the judgment, that judgment still sits on your credit report as a public record for the next 7 years.
  3. attachment (immediate to a few days depending on where you live)…If you own a home, the creditor can run down to the county recorder and record that judgment against your home.  Now when you file bankruptcy, you’ll have to pay extra legal fees to strip or avoid that judgment lien (if you can).
  4. writ of execution (takes around 2 weeks) … The creditor may come to your home with a sheriff and a writ of execution, which allows him to take your property (like laptops, kid’s gaming systems, and your television) and sell it at auction to pay off the debt.
  5. bank levy (can happen in less than a week)… The creditor levies (takes) the balance in your bank account on the day the levy hits.

And yes, bankruptcy can stop these.  However, it sure is nice to file bk before the storm hits.

Is there any way to get the cross-collaterized credit card loan off of my truck loan with my credit union? (updated from 2014)

Back in 2014, I posted the following article here (quoted below), and everything seems even murkier now:

Yes.  The fourth option below (chapter 13) is probably the best bet.

First:     You can pay if off (I know, this isn’t the one you were looking for).

Second:  You can refinance the truck through another lender.  Just remember that if you are behind on payments for that credit card, your current credit union may refuse to release the title unless the loan balance the the truck and the credit card are rolled into the new loan.

Third:  You can file a chapter 7 bankruptcy and surrender both the truck and the credit card.   Just remember that if you try to re-affirm the truck loan with your credit union, they will attach that credit card balance to the loan as well.

Fourth:  You can file a chapter 13 bankruptcy.  In the chapter 13 bankruptcy, you can strip off that cross-collateralized credit card loan from the truck, you can change the interest rate on the truck loan to about 5%, and you can stretch out those car payments over the next 3 – 5 years, even missing the next payment due while we get the case ready to be filed.

I’d like to update this.  

You do have another option called redemption (after filing your bankruptcy).  With redemption, you can secure an outside financing company to finance the car loan for after you file bankruptcy.  However, I have never tried it with a cross-collateralized loan.  In theory, it should work, and you can keep the vehicle.

The reason I am posting this today is because I have a client who wants to keep his truck loan, has equity in his truck, and even has a family member who will purchase the vehicle from the credit union and then sell it back to him over time (as his new, title-holding secured creditor).  However, the credit union is refusing to sell the vehicle without us paying off the cross-collateralized loan in its entirety as well.  We have offered to pay off the secured loan in full, and  they refused.  They would rather receive nothing, go through the repossession process, and take their lumps by selling it at auction (our chapter 7 bankruptcy will wipe out any remaining deficiency balance).  It doesn’t make sense.

That being said, I am giving my client the same advice that I give to almost every client with a financed vehicle:  give it up.  I don’t like car payments and I don’t like the added expense of higher comprehensive insurance which is required for that financed car.

My bankruptcy case was dismissed. How long until my creditors find out?

Generally, you do NOT want your bk dismissed, but it happens.  Sometimes clients forget to pay their filing fees to the court, or they miss a hearing, or a myriad of other problems can occur. Some people even do it intentionally.   And sometimes, unfortunately, the bk court will dismiss your case.  

When this happens, your creditors usually take about 4 days to react to this, but it varies, wildly.  Creditors will generally find out as follows:

12:07 a.m. that night —- Some of your creditors who have ECF (electronic) access to the court will receive notice at 12:07 a.m.  I know this because my phone buzzes each morning at 12:07 a.m. to give me my court notices from that previous day.

4 days later — The bk court will dismiss your case.  Then, about 2 days later, they will mail out the Order Dismissing Case to all of your creditors.  Those creditors will probably receive the notice and open it 2 days later.  So, in most cases, they receive and open the written notice from the court in about 4 days.

2 weeks later — I have found that with large creditors, it seems to take up to two weeks for their collections or bankruptcy department to process the letter from the court advising that your case is dismissed.

What this means is that if your bankruptcy is dismissed, there is a good chance that your creditors will find out right away and re-start collections.  If you were behind on your car, they could come pick it up that night.  If there was a garnishment, they could re-start it with your next paycheck.  Unfortunately, it’s a crap-shoot.  They may not do anything for weeks, or they may react that night.

It is possible that you can re-open your case or file a new one, but that’s complicated enough that I won’t cover it here.  Good luck.

What is a release of garnishment, and how does it affect me?

It releases your garnishment!  

When a creditor sues you, they eventually get a judgment in court.  With this judgment, they can send a letter to your employer so that they can garnish your wages.

Here is a good blog entry on garnishment and timing:  https://robertspaynelaw.com/myutahbankruptcyblog/2017/03/29/a-debt-collector-just-told-me-that-they-are-starting-garnishment-proceedings-when-are-they-going-to-start-garnishing-me/

But let’s say that you are currently being garnished, and they are hitting you for 25% of your paycheck.  A release of garnishment would stop any future garnishments.  However, I would not hold your breath on actually receiving a release of garnishment.

If you look at the picture, you will notice that I didn’t bother removing my breakfast orange.  It’s because the document really doesn’t say much.  It says that the creditor releases the garnishment (for now).  This means that payroll “does not need to withhold or remit funds at this time….”  The Release of Garnishment even cites Utah Rule of Civil Procedure 64(f)(2), but they really mean 64D.

The problem is that you’ll only see a release of garnishment if you file bankruptcy or pay off the judgment.  It’s a great court document to receive, but it’s pretty rare.