How fast can you file a bankruptcy case to stop a garnishment?

Pretty darn fast.

Honestly, I can prepare and file an emergency case the same day you call. But, and this is a big BUT, there are some things you need to do first.

A full bankruptcy petition is a huge legal document. It is usually 65-85 pages long, not counting the copies of 6 months of your paystubs and your last 2 years of tax returns. Thankfully, you don’t have to file a full petition to stop a garnishment. You can file a skeleton, or skeletal petition, which is literally a bare-bones petition.

What a skeletal petition needs:

  1. your name/social/address
  2. your online bk class certificate (this takes you 1 hour to complete)
  3. a list of creditors.
  4. payment to your attorney BEFORE you file.

Why do attorneys hate skeletons?

I know, it sounds easy, but there’s a lot that goes into it. Bankruptcy attorneys hate filing skeletal petitions. The reason why is simple: when you’re taking emergency measures and short cuts, you can really screw up a case. Your bankruptcy attorney has to do his “due diligence” on your case, meaning that he has put the time and effort into reviewing your assets to make sure that you don’t have something that you’ll lose in bankruptcy. Examples include too much equity in your home or car, or a huge tax refund that you haven’t received yet, or maybe even an inheritance.

For instance, I had a client once who had the rights to a small portion of the royalties from a James Taylor song. (I think of this case every time I hear “Fire and Rain” on the radio. His portion of royalties amounted to guaranteed income of around $300 a month. If I had filed a chapter 7, the bankruptcy trustee would have sold that right and used the money to pay off creditors. Instead, we filed a chapter 13 and used that monthly income to make a very modest payment to creditors over 5 years. If I had filed a skeleton without all of the facts, my client would have lost the right to receive $300ish a month for the rest of his life. That’s a big deal.

Why do skeletons work?

In many bankruptcy cases, my clients don’t have a proverbial “pot to piss in.” In reality, they probably do own at least one pot, but their assets are minimal or are protected by our state exemptions. If I can carefully review their assets in detail before we file, there’s not much room for error. It helps that I’m old and have done this thousands of times.

Just remember that your attorney is going to want to get paid before he does the work. He will also have to drop everything else he’s doing to prepare the petition. It’s a hassle, for you, for him, and for everyone involved. But, it can be done.

Here is a video I made on filing a skeletal petition (and yes, I know my face is funny. The left side doesn’t work, so get over it).

And here’s an earlier blog post on the same issue: https://robertspaynelaw.com/myutahbankruptcyblog/2015/04/06/how-long-does-it-take-to-prepare-the-bankruptcy-paperwork-in-an-emergency/

Is the bankruptcy trustee going to go through my Venmo, CashApp, and Paypal accounts after I file?

Oh yes he is! And even worse, the bankruptcy trustee can take any money you have in hand or on deposit on the day we file.

On the day we file bankruptcy, you don’t want to have much in the way of liquid assets (like cash or money on deposit on a bank account). In theory, the trustee can take the money you had on the day you filed and use it to pay creditors. This means Venmo as well!

For instance, let’s say you file a chapter 7 bankruptcy today and have $1,500 in your bank account on the date of filing. Tomorrow, you spend that $1,500 on your monthly rent. One month later, when you meet with the bk trustee, he will ask you to turn over that $1,500 so that he can use it to split between your creditors. When you try to explain that you spent the money on rent after filing, he won’t care. You had it on the day of filing, and he wants it now.

On the day you file bankruptcy, your bankruptcy estate is created. Everything you own on that day is part of your estate. Basically, the bankruptcy paperwork takes a snapshot of your assets for that day. (If you receive your paycheck the next day, that’s okay. You didn’t have those funds on the day you filed). The trustee goes through your estate, takes things that can’t be protected (like the $1,500) and uses them to pay creditors.

On the day you filed, you had the money, and he wants it. It wasn’t your money to spend. It was (and is) his. If you cannot turn over those funds, the trustee can make your case fairly awful. In extreme circumstances, he can even throw out your case and deny you a discharge of your debts.

One month after we file, the bk trustee will ask for a copy of your bank statements going back anywhere from 1-3 months before you filed. This shows all of your transactions and payments. This shows clearly when you paid your mom back or when you transferred money to your Venmo account to hide it from the trustee.

Unfortunately, the trustee has been doing this much longer than you, and he has seen almost every trick people use to hide money. He will ask for transaction reports or statements from not only your bank accounts, but your quasi-financial accounts like Venmo, Cashapp, Paypal, and any others that you can think of. If you had money in those accounts (or strange transactions), it can cause a world of hurt for you and your case.

The safest way to handle it is to disclose everything honestly. If you have a little extra money right before filing bankruptcy (which is rare), go build up your food storage. It’s hard to punish someone for stocking up their food storage to weather a storm.

What happens if I do not reaffirm my home mortgage or my car loan? And why do they say I can make “voluntary payments” if I want to?

Short answer: you can generally keep the car or home, so long as you keep paying on the loan

Long answer: It’s complicated.

When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.

I’ve written a few blog topics on reaffirmation generally, and those links are listed below.

If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.

(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).

But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.

Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.

As for the home, so long as you keep paying on it, it’s yours.

As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.

Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming:

Can the bankruptcy trustee take my spouse’s property if I’m the only one who filed bankruptcy?

Maybe.

It comes down to a lot of factors, but if you want to boil it down to a simple test, here it is: if it smells funny, then you’ve got a problem.

If the property is clearly your spouse’s, was always theirs, you never helped pay for it, and they’ve owned it for some time, then you do NOT have an ownership interest. However, if you bought it together, or if you’ve made all of the payments on it, or if you gifted it to her, then you’ve got an ownership problem.

When you file bankruptcy, your bankruptcy estate is created. This estate means all of your property, real, personal, and intangible. So if you own a home, a car, and have a right to receive a $5,000 tax refund, then all of these items go into your estate.

We try to exempt, or protect your property so that the bk trustee cannot take your estate property and sell it off to pay creditors. For example, in Utah, only $3,000 of your car’s value is protected. So if you own a car worth $10,000 free and clear, then only $3,000 is safe, and the bk trustee will take it and sell it off. He’ll give you $3,000 and use the rest to pay creditors (less his very healthy finder’s fee).

However, he can’t touch your spouse’s property. That being said, there are various degrees of ownership. If she’s owned her home for the past 10 years, and you only recently met and were married last year, then that home is hers, and the trustee won’t touch it. On the other hand, if you two bought the home 30 years ago, and you were the sole provider, then your money paid off that mortgage. You may not be on title, but you have an “equitable interest,” and there will be problems with the trustee.

Even worse, let’s say that you have a Ming vase that you inherited from your Aunt Mildred. It’s worth $80,000. Two weeks before filing bankruptcy, you “give” it to your wife. That doesn’t count! It’s a fraudulent transfer. The bk trustee will avoid the transfer, sell the vase, and pay your creditors. The shade of Aunt Mildred will be very displeased with you.

It’s all complicated and is usually figured out on a case by case basis. That’s why you want to meet with a bk attorney. Tell him everything. That way he can give you honest advice on how to protect your property (if you can).

I just wrecked my car (and someone else’s). Will bankruptcy take care of that?

Yes, unless you were doing something really, really bad.

When you file bankruptcy, most debts can be discharged (wiped out). Some debts have a priority status, like most taxes, student loans, child support/alimony, and criminal restitution. Those debts are NOT discharged by the bankruptcy.

So let’s say that you’re in a car accident and your financed car is wrecked. Hopefully, your insurance will cover it and pay the lender. But, sometimes insurance lapses, or doesn’t cover the whole loan balance. In that kind of situation, you can file bankruptcy and list the car loan balance in the bankruptcy. If there is a deficient balance that is not covered by your insurance, or your deductible, or lack of insurance, that balance will be wiped out by the bk.

As for the other car, if it’s your fault, hopefully your insurance will cover it. Unfortunately, there are times when you are not carrying insurance. (Shame on you)! In that kind of situation, the other driver might even sue you for the damages you caused. This debt can be listed in your bankruptcy.

But here’s the caveat: sometimes the damage to the other driver may NOT be discharged by the bk. This only happens if you were doing something really, really bad. If you did it willfully, or maliciously, or while intoxicated, you be NOT protected by the bankruptcy.

Under 11 U.S.C 523, these kinds of debts are not dischargeble:

(6)for willful and malicious injury by the debtor to another entity or to the property of another entity;

(9)for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance;

See 11. U.S.C. 523

What happens to my 2021 tax refund if I file bankruptcy in 2022?

You lose it, unless you spend it first. But you won’t lose those pandemic relief tax monies (see below).

Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you’re unsure, call a bk attorney in your state and find out.

I’ve written a few articles on this, and the links are below.

When you file bankruptcy, it is the bk trustee’s job to discover assets that you have. Specifically, he wants to find assets that can be sold off and used to pay your creditors. Normally, the trustee will look at equity in your home, money in your bank account, the value of you car, and any tax refund monies that you have NOT received yet.

This means that you have to receive and spend your tax refund before you file bankruptcy, or there is a good chance that the bk trustee will intercept it and use it to pay your creditors.

Here, I will try to give you a quick and dirty list of the do’s and don’ts of spending your tax refund monies.

Don’t:

  1. pay off Mom and Dad before you file bk
  2. buy a new toy, like a dirtbike
  3. hide the money and claim that you spent it
  4. buy jewelry
  5. prepay rent

Do:

  1. buy food storage and clothing
  2. buy boring household appliances like washer/dryer/refrigerator/freezer/stove/sewing machine
  3. buy guns (really) (I can protect up to 3 of any value)
  4. pay for vehicle repairs and tires
  5. pay your attorney for your bankruptcy

Pandemic stimulus tax payments and tax credits.

If you haven’t received these yet, don’t worry. These are exempt from creditors, including the bankruptcy trustee.

Here are the old blog articles:

How can I protect my 2019 tax refund if I file bankruptcy in 2020?

Spend it before you go bankrupt!

Utah has NO exemptions to protect your tax refund when you file bankruptcy. This means that if you go bankrupt before you receive and spend your tax refund, you will lose it. The chapter 7 trustee will take your refund and use it to pay your creditors. On the other hand, if you wait just a little bit to file and receive your refund, you can spend it all before filing bankruptcy.

Just remember to spend it on exempt items.

You can definitely use it to pay your bankruptcy attorney to prepare your case.

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.

The list is below, but you’re always safe with food storage, clothing, washer, dryer, refrigerator, freezer, stove.

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

What happens to my 2018 tax refund if I file bankruptcy in 2019?

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 505https://le.utah.gov/xcode/Title78B/Chapter5/78B-5-S505.html

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.