Monthly Archives: June 2014

Can I list my payday loan in bankruptcy?

Yes.  You can list your payday loan in bankruptcy.

To be honest, you can list everything in bankruptcy.  Some debts, like priority debts (government type debts such as child support/criminal restitution/student loans/taxes) are generally not discharged in bankruptcy.  Payday loans are NOT priority debts.

Payday loans can be discharged (wiped out) in your bankruptcy.  payday loan

Most people are nervous to list payday loans in bankruptcy because they took them out recently and even worse, they signed a contractual provision as part of the payday loan that they could not file bankruptcy on that loan.  As for that contractual prohibition against going bankrupt, it’s invalid.  I can cancel any contract as part of your bankruptcy, including that contract that says you cannot go bankrupt.

The timing on when you took out the payday loan does get a little more problematic.  In theory, if you take out a loan within 90 days of filing bankruptcy (or a cash advance within 70 days prior to filing bankruptcy), that debt can be presumed to be nondischargeable.  This means that if the creditor files an adversary proceeding (bankruptcy court law suit) against you based on that recent debt, he’ll win and you’ll have to pay it back, plus his attorney’s fees.

In reality, those adversary proceeding suits are very rare.  They do happen, and if you do get sued on a recent payday loan listed in your bk, plan on making arrangement to pay it back.  I once filed a case for a gentleman who took out 4 $600 payday loans from 4 different Check City locations in Utah all on the same day, and then he filed bankruptcy with me that afternoon.  I did not know that he had done this, and he sure didn’t volunteer it.  About a week after his bk was filed, I received a friendly call from a Ms. Roman, general counsel for Check City, who explained the situation.  I confronted my client, he denied it, they sued, and he lost.

The 90 day/70 rule comes from the Bankruptcy Code.  11 U.S. Code § 523 lists a number of exceptions to discharge, or situations where you be sued and your debts deemed nondischargeable.  It reads, in part:

(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
(1) for a tax or a customs duty—
(A) of the kind and for the periods specified in section 507 (a)(3) or 507 (a)(8) of this title, whether or not a claim for such tax was filed or allowed;
(B) with respect to which a return, or equivalent report or notice, if required—
(i) was not filed or given; or
(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or
(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or
(C)
(i) for purposes of subparagraph (A)—
(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
(II) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable

 

 

Can the trustee object to my 401k contributions or my charitable donations in bankruptcy?

Maybe, yes, unless the court finds that you are making those contributions in good faith.

In In re Jensen, 12-33826, 7/26/2013 the Chief Judge for the U.S. Bankruptcy Court for the District of Utah, Judge Thurman, held in a written opinion that the court would analyze contributions on a case-by-case analysis using a good faith analysis.

In the Jensen case, the debtors barely started making contributions to their 401k less than three months before they filed for bankruptcy.  They started paying $541.67 a month into their 401k.  In a chapter 13, this changed their budget from having an excess of $361 a month to pay their creditors to having -$180 a month for creditors.  Over a 60 months plan, this results in a savings (in chapter 13 payments) of about $21,000.  Because they were contributing to their 401k instead of paying back creditors, this would give them about $21,000 in their 401k at the end of the chapter 13 plan.

The trustee objected, claiming that they had decided to make these contributions only to help their Form 22 analysis (their six month average of income analysis), so that they would have a smaller chapter 13 payment.  The Trustee also objected on the grounds that beginning voluntary retirement contributions so close to the petition date showed that the Debtors were not proceeding in good faith.   The trustee compared this to a family who met a bankruptcy attorney and then bought a “junkyard car” days before filing bankruptcy so that they could claim a second vehicle expense on their forms.

(The 401k contributions are generally an important part of pre-bankruptcy planning, because they are not considered a part of the bankruptcy estate).

In the case at hand, Judge Thurman determined that under particular circumstances in this case, that the contributions were proposed in good faith.  The court applied an 11 factor good faith test from Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) and determined that there was good faith under the totality of the circumstances.

In other words, the contributions were not a way of tricking the system, and the Debtors were allowed to go forward with their Chapter 13 Plan.  The only caveat:  the chapter 13 trustee would check the debtors taxes at the end of each year to determine whether or not the debtors were keeping up those contributions.

We own a plot of land that we don’t live on. What happens to that in bankruptcy?

In bankruptcy, Utah allows you a homestead exemption of $5,000 in a piece of land or real property which you own, but where you do not reside.  (It’s not your primary residence).

78B-5-503.   Homestead exemption

(2) (a) An individual is entitled to a homestead exemption consisting of property in this state in an amount not exceeding:
(i) $5,000 in value if the property consists in whole or in part of property which is not the primary personal residence of the individual; or
(ii) $30,000 in value if the property claimed is the primary personal residence of the individual.

So if you own a plot of land in the mountains where you’d like to build a cabin one day, it is safe in bankruptcy up to $5,000 in value.  If both husband and wife are on title to the property, then you can double that exemption and protect up to $10,000 in value.  mountain picture

Now what happens if the land is worth more than the $10,000?  Well, in a chapter 7, the trustee can either sell the land, give you $10,000 for your troubles, and use the rest to pay creditors (after paying himself a healthy fee for conducting the sale).  Or, the trustee may settle with you and allow you to pay him for the unprotected equity.

In a chapter 13, the chapter 13 trustee can demand that any excess equity be paid into your chapter 13 plan for the benefit of your creditors.

None of this matters if you have a loan against the property for more than its value.  If the mortgage exceeds the value of the land, then there’s no equity for a trustee to take.

Can someone object to my bankruptcy and throw it out?

Sometimes, but it’s rare.

If you file a chapter 7 case, you may have some creditors who object to the dischargeability of their particular debts.  They might file adversary proceedings (bankruptcy lawsuits) to determine that the debt is nondischargeable (cannot be discharged or wiped out) in bankruptcy.  These debts generally revolve around issues of fraud.

If you file a chapter 7 and have secret assets, like a beach house and a bank account in the Cayman Islands, then some of your creditors may advise the chapter 7 trustee of your failure to list these valuable assets  The chapter 7 trustee may try to liquidate those assets and then refer you to the Justice Department, U.S. Trustee’s Office for prosecution of fraud.

If you file a chapter 7 and fail to obey a trustee turnover order (like an order to deliver your car up for auction or an order to turn over your tax refund), you may face revocation of your discharge by the trustee, where your entire case is not only thrown out, but you can never file a chapter 7 again on those debts.

If you file a chapter 7 and the trustee discovers that your income is too high for a chapter 7, he may refer you to the U.S. Trustee’s Office.  They will give you the option of dismissing your case, or of converting it to a chapter 13 to put you on a repayment plan because of your above median/average income.

In a 13, there are a lot more things that can go wrong.  Your case can be dismissed (or thrown out) if you fail to respond to the chapter 13 objections, if you fail to resolve any objection by any creditor, if you fail to properly file your taxes, make post-petition mortgage payments, make post-petition child support/alimony/domestic support obligations, etc.  This is why so many chapter 13s face dismissal early in their lives.

 

Can I lose my contractor’s license or be denied a new contractor’s license through the state because of my bankruptcy?

No.  However, the state may very well try.

When I first started out in bankruptcy, the housing crash destroyed anyone working in fields related to housing, including contractors, whether it be general contractors, or a sub who only did bathroom tile.  When a contractor filed bankruptcy, the State of Utah would yank their license.  However, the state cannot do this.

11 U.S.C. s 525 states:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

Now this doesn’t mean that the state cannot give you new requirements regarding bondability, but they cannot revoke your current license or deny you a new license solely because of the bk.

Can I get fired for filing bankruptcy?

No.  You cannot get fired for filing bankruptcy.

In fact, federal law specifically prohibits your employer from terminating you.  11 U.S.C. 525 states:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Simply put, you cannot be fired “solely” because of the bankruptcy.

That being said, if your employer fires you a few months later for having been late a couple of times in the past year, you may have an uphill battle in an employment discrimination or wrongful termination lawsuit trying to prove that the termination was based on solely on the bankruptcy.  Even worse, you probably have no money at this point, which means that you’ll need an employment lawyer who will work on a pure commission/contingent fee basis.

I filed for chapter 7 bankruptcy but didn’t reaffirm my car loan but am still paying it. Will I eventually own the car?

Yes.

(The only caveat is with a few creditors that I’ll cover later).

Even if you don’t reaffirm the car loan (or a home loan/mortgage for that matter), so long as you pay off the balance in full, you will own the car.  You’ve fulfilled the contractual obligation, and the lender has no option but to remove themselves as a lienholder on the title and send the free and clear title to you.  So let’s say you don’t reaffirm on your car loan but keep the payments current.  You pay it off about two years after the bankruptcy has been discharged, making current payments the whole time.  What happens?  The bank sends you the title.  It’s that simple.  free and clear car title

However, some creditors require that you reaffirm on your vehicle or they will repossess it anyway.  You will know about this in the first three months of the case.  It won’t be a surprise 6 months after you’ve filed.  I discuss this reaffirmation problem/requirement here:  http://robertspaynelaw.com/myutahbankruptcyblog/2014/03/27/do-i-have-to-reaffirm-my-car-loan-to-keep-my-car/

Can we keep our tractor/snowmobile/four wheeler and make payments on it in a chapter 13 bankruptcy if we use it for snow removal purposes?

Probably not, not unless you are willing to pay through the nose for it.

In a chapter 13, if you own the tractor/snowmobile/4 wheeler free and clear, then the chapter 13 trustee will include this in a “liquidation analysis,” where the trustee determines how much he could liquidate your assets for to use to pay off your creditors.  For instance, if you have a tractor worth $5,000 and we cannot protect it under any exemption, then you would have to pay the liquid value of it into your bankruptcy plan.  You would have to pay $5,000 to your creditors as part of your 36-60 month chapter 13 plan.

On the other hand, if you have a loan against the tractor/snowmobile/4 wheeler, the trustee will object to it’s retention as a “toy” which is not necessary to your household needs or your reorganization.  If you propose to keep this toy, the trustee will demand that you not only pay the secured loan, but pay that same amount to your creditors, in addition to the secured loan.  For example, if you owe $5,000 on the tractor, you would have to pay $5,000 to that creditor and then also pay $5,000 more to your unsecured creditors.  That tractor now costs you $10,000 to keep.

Today in court I saw an attorney make an interesting argument in front of our Chief Judge Thurman.  He argued (and had affidavits and a doctor’s note to back him up) that the debtor had a bad back and needed his 4 wheeler for snow removal in the wintertime.  (This is Utah, and it gets very, very snowy).  In other words, he argued that it was not a toy, but a medical necessity.  The judge shot him down and told him that the long-standing policy against the retention of toys was not changing in this case.  The judge reasoned (correctly), that it would be cheaper to hire a neighborhood boy to shovel the walks when necessary, instead of double paying for the 4 wheeler.

Can I file bankruptcy on worker’s compensation overpayment claims?

Maybe, but you’ll probably get sued in bankruptcy and still be required to pay those debts.

If the Department of Workforce Services is coming after you for overpayment of unemployment or disability benefits, bankruptcy may actually help you.  Those debts are dischargeable in bankruptcy.

The problem arises when Workforce Services threatens to, or does in fact, file an adversary proceeding to determine that the debt is nondischargeable.  They will claim that your overpayment was based on fraud, and most likely they will win.

So, you’re then left with a choice:  you can fight the adversary proceeding or simply pay the debt.  Here in Utah, Workforce Services will see that you’ve listed them in the bankruptcy.  They always come to the 341 Meeting of Creditors.  After the meeting they’ll meet us in the hallway and give us a choice:  1.  reaffirm the debt for the current amount you owe with no interest rate and no specified repayment plan, or 2.  fight the adversary proceeding they will file in a couple of weeks.

When they file the adversary proceeding, they will tack on at least $500 in attorney’s fees in addition to the amount you already owe.  If you try to fight it, your attorney will charge an additional retainer for the adversary proceeding, and he’ll bill you on an hourly basis, because now you are involved in litigation as opposed to a flat fee bankruptcy.  Basically, it’s a mess.

There is no good answer, and in most cases, I advise my clients to sign the reaffirmation agreement because it is much, much cheaper than fighting it, and there is usually a very high probability that we will lose that fight.

My 20 year old daughter works part-time and owes $7,500. If I can’t pay her debts, should she go bankrupt?

This is a tough one, and it was the question I was asked last night by a client over the phone.

His daughter works part-time as a waitress, she only owes about $7,500, but more debt is coming.  Her boyfriend moved out of their shared apartment, and her name is the only name on the lease.  She moved back in with Mom and Dad, but they can’t pay the $7,500, she’s getting garnished, and that apartment lease is going to come after her soon as well.

Normally, if someone owes under $10,000, I tell them that it’s just not worth it.  $10,000 is really only a car payment for many people, and it stinks, but you can pay it back over time.  Here, she owed that much, plus was getting garnished, plus her life was a wreck.  Mom and Dad were flailing, trying to find an answer for her.  It was obvious that Dad loved her, was worried for her, but wasn’t in a financial position to write a huge check.

In this situation, I discussed what would happen in a chapter 7, warned that she would have bad car loan interest rates for the next 2-3 years, warned that she couldn’t purchase a home for at least 2.5 years, and warned that she’d always have a bankruptcy to her name.  Then, I gave them a cut-rate price, because it wasn’t that hard of a case, and she needed a break.