Do I have to keep paying my car loan after I file for bankruptcy?

Only if you want to keep the car. If you stop paying for it, they will repossess it.

When you file a chapter 7 case, you check a box on your paperwork that says “reaffirm” or “surrender.” If you reaffirm the debt, you keep making payments with the same balance, terms, and payment (see below). If you surrender, then you stop making payments and let them repossess the car (but since you filed bk first, they cannot report it as a repossession on your credit, and they cannot sue you for the difference).

When you file a chapter 13, if you want to keep it, then you can either keep paying for your directly (outside of your chapter 13 plan), or you can propose to pay for it monthly as part of your chapter 13 plan. Either way, you keep paying for it. If you want to surrender it, then stop making payments.

So if you want to keep something that you financed, then you need to keep paying for it.

Every now and then I have a client ask me if the bk wiped out their car loan. They are asking because they sincerely believe that the bk would wipe out the loan and let them keep the car free and clear. It doesn’t work this way. Bk discharges your personal liability for the loan, BUT the loan is still attached to the collateral. If you want to keep the collateral (like the car), then you have to keep paying for it.

If you stop paying, they cannot sue you on the loan, which was discharged, but they can definitely repossess the collateral (your car or truck).

I am receiving an insurance settlement from my car accident. When does the hospital lien attach, and can bankruptcy discharge that lien?

Complicated answer: The hospital lien immediately attaches to any settlement or insurance proceeds, and bankruptcy does NOT discharge that lien.

Generally, your insurance proceeds/settlement are exempt, or safe from creditors (and the bankruptcy trustee) under Utah law. See

Utah Code 78B-5-505 (1)(a)(x) “An individual is entitled to exemption of… proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.

However, before you file bankruptcy, your hospital creditors have an opportunity to file a “hospital lien,” which is a lien or claim against those insurance monies.

Below, I am going to cover the hospital lien statute in a little more depth and give a recent Utah bankruptcy case dealing with when the lien attaches.

Hospital Lien Statute (Utah Code 38-7-1):

The hospital lien attaches automatically, but is only perfected after:

  1. medical services are provided
  2. notice of the lien is given
  3. the lien is then perfected when verified written notice is filed in the state district court where the hospital is located, and
  4. the notice of lien must be sent by certified mail to the person/parties liable for the injuries and to the insurance carrier.

In fact, the hospital can perfect its lien after you file bankruptcy. Filing bankruptcy does NOT get rid of their lien, and their perfection of that lien does NOT violate bk law.

Now what if they haven’t even provided notice of the lien before filing bankruptcy? I’m not sure. Someone is going to have to take that argument before the bankruptcy court.

The United States Bankruptcy Court for the District of Utah covered this issue in In Re Cloward, 608 B.R. 759 (Bank.D.Utah 2019) here.

What is the statute of limitations for medical bills and credit cards collecting on me?

It varies a lot. Here in Utah, you can count on 6 years being about standard.

The statute of limitations means the amount of time a creditor has to file a lawsuit against you for some kind of debt. For example, you had a medical procedure done 10 years ago, and they just barely got around to filing a lawsuit against you in state court. That lawsuit could be thrown out if you assert the defense that the statute of limitations has run.

Basically, the debt is too old, and they missed their chance.

Here in Utah, the statutes of limitation for debt collection look like this:

8 years

judgment — 8 years from date of judgment (unless they renew it, then the 8 years starts again)

6 years

credit cards — 6 years from date on signed contract or 4 years from last payment received

car loan — (it’s a signed contract)

gym membership — (it it’s a written agreement, otherwise only 4)

medical debt — (6 years or 4 years, depending on whether or not there’s a written contract)

4 years

store accounts (like an RC Willey account)

for work performed (without a contract)

open account for services or materials — (no contract here either)

verbal contract — (Not in writing. That’s why is says “verbal.”)

3 years

fraud — 3 years from date of discovery (when the defrauded person learns that he’s been defrauded)

2 years

wrongful death

1 year

libel, slander, false imprisonment, or seduction — 1 year (and to be honest, I’ve never had a seduction case before, dang it!)

Here are the actual statutes:

1 year

78B-2-302

An action may be brought within one year:

(4) for libel, slander, false imprisonment, or seduction;

2 years

78B-2-304

An action may be brought within two years:

(2) for recovery of damages for a death caused by the wrongful act or neglect of another;

3 years

78B-2-305

An action may be brought within three years:

(2) for taking, detaining, or injuring personal property, including actions for specific recovery; except that in cases where the subject of the action is a domestic animal usually included in the term “livestock,” which at the time of its loss has a recorded mark or brand, if the animal strayed or was stolen from the true owner without the owner’s fault, the cause does not accrue until the owner has actual knowledge of facts that would put a reasonable person upon inquiry as to the possession of the animal by the defendant;
(3) for relief on the ground of fraud or mistake; except that the cause of action does not accrue until the discovery by the aggrieved party of the facts constituting the fraud or mistake;

4 years

78B-2-307

An action may be brought within four years:
(1) after the last charge is made or the last payment is received:
(a) upon a contract, obligation, or liability not founded upon an instrument in writing;
(b) on an open store account for any goods, wares, or merchandise; or
(c) on an open account for work, labor or services rendered, or materials furnished;

6 years

78B-2-309

(1) An action may be brought within six years:
(a) for the mesne profits of real property;
(b) subject to Subsection (2), upon any contract, obligation, or liability founded upon an instrument in writing, except those mentioned in Section 78B-2-311; or
(c) to recover fire suppression costs or other damages caused by wildland fire.
(2) For a credit agreement, as defined in Section 25-5-4, the six-year period described in Subsection (1) begins the later of the day on which:
(a) the debt arose;
(b) the debtor makes a written acknowledgment of the debt or a promise to pay the debt; or
(c) the debtor or a third party makes a payment on the debt.

What happens to my personal injury lawsuit or settlement when I file bankruptcy?

Nothing.

(Last week I went to lunch with a personal injury attorney. He paid, because I do poverty law. I wanted to be well-versed in the intersection of personal injury law and bankruptcy law, so I went to my own blog from 2014 and then did some research to see if anything had changed. Nothing has changed. The old blog post is here: https://robertspaynelaw.com/myutahbankruptcyblog/2014/01/23/what-happens-to-my-personal-injury-suit-or-settlement-when-i-go-bankruptcy/ )

At least, nothing will  happen to it if you do it right.  Under the Utah Exemptions Act, you can exempt (protect)

proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.

What this means is that if you are already receiving a personal injury settlement payment each month, or a lump sum settlement, that money is protected from creditors and from the bankruptcy trustee demanding turnover, so long as the damages you’re being paid for are compensatory in nature.  In other words, if the settlement’s terms state that it is to compensate you for pain and suffering or compensate you for something, then the money is safe.  On the other hand, if the money coming to you is a result of punitive damages, that is bad.  It is not exempt, and you will lose it.

Compensatory = good.   Punitive = bad.

Now what happens if you’re involved in a personal injury suit that hasn’t been settled yet and you have to file bankruptcy?  The trustee may allow your attorney to stay on the case but will want updates on how the settlement is going.  There is a very tiny chance that the trustee will want you to use a different attorney, and he will appoint a different attorney to your case.  This is very rare.

But, if the case eventually settles for compensatory damages, then you’re okay.

When do the foreclosure and eviction moratoriums end (in Utah)?

July 31, 2021.

(Not just in Utah, but in almost every state unless your state has passed some kind of state extension).

Here is a link to the Utah Courts page on “Eviction Information for Tenants.” The single best part of the page is a simple statement that “[t]he moratorium does not forgive rent.” In fact, the whole paragraph is pretty important:

The moratorium does not forgive rent. You are required to make partial payments for rent if you can. Rent, late fees and penalties can still accrue during the moratorium. If you have not paid all of the back rent you owed when the moratorium ends on July 31, 2021 you could be evicted. You are also required to comply with all other terms of your lease

By the same token, that foreclosure moratorium does not forgive missed mortgage payments (called arrears). You are still liable for those payments, and if you can’t catch up, they can foreclose.

Even the various loan forbearance programs don’t forgive those mortgage payments. If you don’t have a deal specifically modifying your loan, then those payments are coming due very soon.

So how does bankruptcy help:

well, it can stop an eviction and it can stop a foreclosure.

I’ve covered these topics on the links below, but if you’re facing eviction or foreclosure, bankruptcy is a pretty good option.

Will the bankruptcy trustee take my recovery rebates or tax credit under the American Rescue Plan?

Nope, they’re safe.

On March 25, 2021, the United State Justice Department issued a “NOTICE TO CHAPTER 7 AND 13 TRUSTEES REGARDING TREATMENT OF RECOVERY REBATES AND TAX CREDITS FOR CONSUMER BANKRUPTCY DEBTORS UNDER THE AMERICAN RESCUE PLAN ACT OF 2021.” You can read it here.

In the Notice, the DOJ says that:

Chapter 7 and 13 trustees should not consider recovery rebates or child tax credits in administering estate assets or calculating disposable income in chapter 13 repayment plans.

What this means is that:

  1. the money is not an asset (so the bk trustee cannot take it in a 7 or a 13), and
  2. it doesn’t count as income (so it doesn’t increase your chapter 13 plan payment)

Basically, this money was intended to help families, and they get to keep it. It doesn’t help families for a bk trustee to take it, pay creditors, and charge a healthy service fee to debtors for the privilege of taking and administering their money.

Why does the bankruptcy trustee want me to list and value my clothing? Is he going to take the shirt off of my back?

No, he’s not. Your clothing is exempt.

But you still need to list your personal assets and value them. If you don’t, it can be bad.

When you file bankruptcy, your bankruptcy estate is created. The bankruptcy estate is all of your real and personal property, like your clothing, your car, and your home. It is the bankruptcy trustee’s job to review the estate and take any assets of value and sell them for the benefit of your creditors. (In a chapter 7 the trustee sells them. In a chapter 13 the trustee requires that you pay their value to your creditors over a 5 year plan).

Most of your property is exempt, or protected. For example, in Utah, state law protects the following from creditors (and trustees) , Utah Code 78B-5-505:

78B-5-505 Property exempt from execution.
(1)
(a) An individual is entitled to exemption of the following property:

(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

So no, the trustee cannot take the shirt off of your back. Now if your shirt is made of mink and studded with diamonds, there may be an issue, but I’m betting that you’re not that stylish.

If you do not list your assets, you are committing fraud. It’s usually not actionable fraud, because forgetting to list your clothing is a “de minimus” mistake (literally “of minimum” or “a trifle”). But the trustee is going to ask you to amend your paperwork and list your personal assets, like the shirt on your back. And, most of the trustees in Utah will look at your attorney and say, “Counsel, either you’ve failed to do due diligence on this case, or else your client is a nudist borrowing a friend’s clothing for the meeting. Please amend the schedules accordingly.” It is funny when it happens, and it’s happened to all of us, but it still makes you look sloppy.

How do you calculate home equity in a bankruptcy with this crazy 2021 housing market?

Honestly, I calculate it while muttering, “tsk, tsk, tsk” and telling my clients that maybe they do not want to file bankruptcy right now.

Basically, if you have too much equity in your home, you’re going to have to pay your creditors something. In a chapter 7 the bk trustee will sell your home and use the money to pay your creditors. In a chapter 13, you keep the home, but the bk trustee will have you pay that exposed equity back to creditors over a 5 year plan.

This doesn’t mean ALL of the equity, just the exposed equity. Depending on where you live, your state offers a homestead which protects some of your equity. For example, in Utah, you can protect $43,300 of equity for each person on title for the home. So if your home has $40,000 of equity, you won’t lose it because there’s no exposed equity. However, if your home has $100,000 of exposed equity, only $43,300 of that is safe. The rest of the equity will need to be paid out to your creditors. That exposed equity can be paid out by selling the home or by filing a 5 year repayment plan in a chapter 13.

If you had the same home in Texas, 100% of the equity is safe (protected), so long as your home doesn’t sit on more than 10 acres. The Texas homestead exemption is huge.

Here is a depressing email exchange I recently had with a potential client (in which I recommend that instead of paying me to go bankrupt, that he should try debt settlement or consolidation instead).


Are we still going to be ok with the house in this crazy market? I know we talked previously on the phone and you had originally thought yes we would be ok. Is that still the case?


Let me know, thanks


Signed, A POTENTIAL CLIENT WHO IS GOING TO HATE MY RESPONSE

Robert Payne <robertspaynelaw@gmail.com>
2:07 PM (13 minutes ago)

Home Equity

As for the house, I think we have a giant problem.  

You told me it’s worth about $520,000 and we owe about $480,000 (Who is the mortgage lender, when did you take it out, and what is the balance?).  This would give you $40,000 of equity.  Under Utah law, I can protect $42,700 of equity for husband and another $42,700 of equity for wife, or about $85k of equity.  If the house is worth $520,000, it is perfectly safe in a chapter 7 or a chapter 13.

However, when I look at the county tax assessed value, it puts your home at $690,500 (jumped from $584,100 in the last month with the new 2021 assessment).  If I look at Zillow, it puts the home value at $774,731. 

I need to know what the mortgage balance is, when you took it out, and who the lender is.  Do you have a second mortgage attached to the property?

Chapter 7
With these numbers, you do not want to file a chapter 7.  In a chapter 7, the bk trustee sends his realtor to look at the property.  If he can sell it for enough to pay you your protected $85k and pay creditors anything, then the bk trustee will sell the home.  

Chapter 13
In a chapter 13, the bk trustee will go off of the property tax assessed value of $690,500.  Here is how the calculation would work:
690,500 (home value)
– 480,000 (1st mortgage)
= 210,500 of equity.

Then the trustee subtracts the following amounts
210,500 (equity)
– 85,000 (homestead exemption)
= 125,500 exposed equity.

Then the trustee subtracts proposed realtor’s fees/commission in a proposed sale (but does not sell it)
125,500 (exposed equity)
– 41,430 (6% realtor’s fees on the sale of a home for 690,500)
= 84,070.

This means that in a chapter 13, we have $84k of exposed equity.  To keep the home, you would have to pay $84,000 over 5 years to your creditors to wipe out the unsecured debt like credit card debt.  This would make your chapter 13 plan payment at least $1,400 a month for five years (plus another $250 or so to cover attorney’s and trustee’s fees)

Best route to take
If you file bk, you either lose the home or lock yourself into payments of at least $1,650 a month for 5 years to keep the home.  You may want to talk to a debt settlement or debt consolidation place first to see if there is any way of doing this without paying back at least $84k to creditors.

However, all of this depends on how much you actually owe on the home.  If there is a second mortgage, or secured home equity line of credit, it may eat away at that equity and lower your payment substantially.

Robert
P.S.  The homestead has been updated to $43,300 for each of you, which protects another $1,200 of the home’s equity.

The eviction moratorium is ending and unpaid rents are due. How does bankruptcy help?

Basically, in most cases, you can move to a new place, list the old one in your bk and wipe out those unpaid rents.

That being said, it gets complicated pretty quickly.

Most people qualify for a basic chapter 7 case. In a chapter 7, you can list your debts (including unpaid rents), and all of those debts are wiped out except for certain priority debts like taxes, criminal restitution, child support and alimony, and student loans. Unpaid rents are the kind of debts that are wiped out. (Those are also discharged in a chapter 13, but you may have some kind of payment plan on those over a 5 year period).

Here are a few different scenarios:

Move to new rental then file bankruptcy — Now let’s say you haven’t paid rent for the past year due to the Pandemic, and now you move to a new rental. You can list the old rental in the bk and wipe out that balance, including collection fees and costs. The bankruptcy does not wipe out your new lease, and you can keep paying rents at the new home.

No eviction yet, file bankruptcy, then move — What if you haven’t paid rent in a while, and you need to file bankruptcy right away? You can file bankruptcy and wipe out those unpaid rents. BUT, and this is a big “but,” you are liable for any fees you incur from the day you file until the day you move out. Let’s say that you’re apartment costs $1,000 per month and you are $10,000 behind in rent. You decide to file bankruptcy, and then move out a month later. You can wipe out that $10k of back rent, but you must pay that $1,000 for the month you stay after filing your case.

Eviction ready to be filed and you file bankruptcy — If the eviction proceedings haven’t been filed yet, then they cannot evict you. Well, they can, but there are a bunch of hoops to jump through. If you file bk before they file eviction, then they will need to file a bankruptcy court motion to lift the automatic stay (the bankruptcy protection), and then they can evict you. Don’t forget that you still owe those unpaid rents for the time you occupy the home after filing bankruptcy until you move out.

Eviction filed before you file bankruptcy — The landlord wins. If he gets that signed eviction order before you file your chapter 7, you need to move out immediately. He doesn’t care that you have no place to go. He wants you out, and that eviction order is enforceable.