Today I received a phone call from a client who had a successful Chapter 7 case 3 years ago (successful because she received her discharge). Creditors have been quiet for years. Then, out of the blue, she receives a certified letter with the above foreclosure notice. Thankfully, she called me right away.
She did surrender this liability years ago. However, the timeshare company never bothered doing anything with it (probably because it was worthless). Now, they are selling it off, and they are required by law to notify her.
This does NOT mean that she will have a foreclosure on her credit. They will NOT be able to sue her for any deficiency balance. We gave this up years ago and wiped out the debt. The certified letter gave her notice only: she doesn’t have to respond or do anything else.
Basically, if you are over, then you are a chapter 13. If you are under, then you are a chapter 7.
So I just refunded a retainer payment to some clients who didn’t understand the difference between net and gross. With one child, the magical median income number was $78,581. They told me that their income was sitting at $72,000, so it should have been a simple chapter 7. Once they sent in their paystubs, it showed that they were pulling in $98,000 a year (gross). With payroll deductions, they were netting $72,000 a year (net).When I ran their income figures through my 6 month paystub analysis, Form 122 showed that they had over $2,000 a month left over to pay their creditors off. That means that they would have to be a chapter 13 with a repayment plan of up to $2,000 a month. They didn’t like this development at all, and I refunded their money.
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):
Married with 1 child: $78,581
Married with 2 children: $88,835
Married with 3 children: $97,835
Married with 4 children: $106,836
Married with 5 children: $115,835
Married with 6 children: $124,835
Married with 7 children: $133,835
Married with 8 children: $142,835
Married with 9 children: $151,835
Married with 10 children: $160,835
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.
Well, technically, you did discharge your personal liability for that second mortgage, but it was and it is still attached to your home.
When you file a chapter 7 bankruptcy, it discharges almost all of your debt, including your mortgages. However, this just discharges the debt from you personally. If the debts are secured by a house, you still have to keep paying those debts if you want to keep the collateral.
You can chose to reaffirm the debts and re-assume personal liability for them. That way, they report positively on your credit. Or, you can keep that personal discharge but still keep making payments on the loans. So long as you keep paying the mortgages, you will keep the home. Eventually, you’ll even pay if off and own the title, free and clear.
However, just because you received a personal discharge doesn’t mean that the mortgage was discharged from your home.
In a chapter 7, you can strip (remove) non-consensual liens, like judgments, from your title. You cannot strip consensual mortgages. This means that you cannot strip or remove a mortgage that you signed and agreed to.
Now in a chapter 13, you can sometimes remove a 2nd mortgage if there was no equity in your home to secure that second mortgage. However, that involves some fairly complicated court filings, and you would know if that had happened.
If you receive a friendly phone call from your 2nd mortgage lender advising that you are in arrears for missed mortgage payments, you need to either work out a repayment plan with them directly, or maybe even file a chapter 13 to catch up on those missed 2nd mortgage payments. Otherwise, they can and will foreclose on your home.
That being said, they can take the home, but they cannot sue you personally, because your personal liability for the 2nd mortgage was discharged by your chapter 7.
No they will not (as of July 1, 2019). That being said, most medical creditors and hospitals, including IHC, will still sue you for deceased spouse’s medical bills here in Utah.
A long-term client/friend called me out of the blue yesterday. We had been planning to file a chapter 13 because her husband had passed away and the medical creditors were circling. They had filed suits, obtained judgments, and were closing in.
She doesn’t watch the news (too depressing), but she turned on the tv to load one of her saved programs, and there was a KUTV report on a “Get Gephardt” investigation into the University of Utah’s post-death collection practices. ( I am linking the article below and cutting/pasting it).
After the report, she called the attorney for the U, explained her situation, and within 10 days, he had withdrawn all of those hospital liens/judgments against her home. Now she doesn’t need bankruptcy!
She was so happy that she called me to tell me the good news. It seemed like a very good thing to share.
Here is the article by Matt Gephardt and Cindy St. Clair:
LAYTON, Utah (KUTV) — This past February, Jodie Elliott’s husband, Larry, passed away unexpectedly. As she began settling his affairs, a bill arrived from University of Utah Healthcare saying Larry owes $390.85 for a trip to a dermatologist.
Elliott says she called University of Utah Healthcare and informed them that her husband was deceased.
“They said, ‘Oh, well these medical bills will now become yours and we’re going to change the bills and put them in your name,’” she said. “I said, ‘I don’t understand why I’m paying these because they’re not mine. I never signed for them.'”
Sure enough, a couple weeks later the same bill arrived demanding Elliott is responsible for the debt. Elliott protested, but it didn’t do any good.
“[University of Utah Healthcare] said, ‘Well, it’s a Utah state law; whenever a husband or a spouse dies, the remaining spouse is responsible for all the medical bills.’”
When Get Gephardt reached out to University of Utah Healthcare on Elliott’s behalf, a spokesperson pointed to state law, which says that if something is a family expense, then it’s the responsibility of both husband and wife.
When Get Gephardt asked how a man going to a dermatologist is a family expense, University of Utah Healthcare referred further comment to its lobbyist, Dave Cassel, the executive vice president of the Utah Hospital Association.
“If it saves him from getting cancer down the road, I would argue it [is a family benefit],” Cassel said.
Cassel says University of Utah Healthcare is operating within the law.
“I think, like any business, they have the right to follow this law,” he said.
University of Utah Healthcare may have the right, but their competitors don’t exercise that right.
Get Gephardt called the other major hospital groups in Utah, MountainStar and Intermountain Healthcare. Both companies stated that they absolutely do not slap a surviving spouse with his or her late loved one’s bill. They’ll go after the estate and, if it’s tapped, they write off the bill.
When Get Gephardt told University of Utah Healthcare it seems to be the only organization using the heavy-handed billing policy, it had a change of heart.
“We are changing that policy,” said Kathy Delis, the administrative director of revenue cycle support service for University Hospital. “We are changing our policy to no longer bill patients’ surviving spouses for debt that’s owing. Instead, we will bill the estate or the probate.”
Larry’s bills are no longer Jodie’s problem.
Delis says the change is a direct result of Get Gephardt’s inquiries on Elliott’s behalf.
As for other surviving spouses who have been slapped with their late loved ones’ bills, University of Utah Healthcare says it is auditing its system to find out who is impacted, and plans to write off those debts, too
That being said, you only need to list them if they are a co-debtor on something you’re listing in the bk or if you owe them a domestic support obligation (dso) like child support or alimony?
What if they’re a co-debtor?
Well, if they are a co-debtor, it means that they are also liable on the loan you are wiping out in your bankruptcy. Let’s say you both took out a car loan 2 years back, and you were supposed to pay for the car after your divorce. Unfortunately, you did not, and the car was repossessed. When you file bankruptcy, you can discharge those repo fees, but they will come after your ex for the balance. You need to let him/her know what’s happening. Even if you don’t like them, it’s the least you can do.
What if you pay them child support or alimony?
You are required to list them as a creditor in your bankruptcy, and the trustee will require you to fill out a Domestic Support Obligation form. Here in Utah, we use variants of this form: the Domestic Support Obligation Questionnaire.
The simple reason for you to fill out this DSO form is because the bankruptcy trustee needs that information to contact your ex-spouse directly. He/she is required to send two notices to your ex, the first one saying that they still have rights to receive DSO payments, and the second to say that there was a discharge of your other debts.
I receive phone calls from ex-spouses of my clients wondering why they are listed in the bankruptcy case and how this will affect them. I hope that I put their minds at ease when I tell them that they will keep receiving their child support payments. We are discharging the other debts, not the domestic support obligations.
Since I’ve been practicing bankruptcy law, the Utah homestead exemption was $30,000. This means that $30,000 of equity in your home was safe from creditors. Now it’s $42,000. Woot!
On March 26, 2019, Utah Governor Gary Herbert signed an upgrade to the Utah Homestead Act, increasing the exemption from $30,000 to $42,000 (which you can double for married couples up to $84,000 in equity). The law finally took effect on May 14. See: Utah Governor Signs Law on Property Tax Exemptions.
Here’s what it means in practice: let’s say you have a home worth $100,000, and you owe $100,000. There is no equity, and your home is safe from creditors (and bankruptcy trustees wanting to sell it off).
But, try these numbers:
home fmv $100,000 with a loan of $70,000 = $30,000 of equity. The homestead exemption protects that $30,000 of equity from creditors and the trustee.
home fmv $100,000 with a loan of $50,000 = $50,000 of equity. The homestead protects $42,000 of that $50,000 of equity, so you have $8,000 of unprotected equity in your home.
Effective 5/14/2019 78B-5-503. Homestead exemption — Definitions — Excepted obligations — Water rights and interests — Conveyance — Sale and disposition — Property right for federal tax purposes.
For purposes of this section:(a)”Household” means a group of persons related by blood or marriage living together in the same dwelling as an economic unit, sharing furnishings, facilities, accommodations, and expenses.(b)”Mobile home” means the same as that term is defined in Section 57-16-3.(c)”Primary personal residence” means a dwelling or mobile home, and the land surrounding it, not exceeding one acre, as is reasonably necessary for the use of the dwelling or mobile home, in which the individual and the individual’s household reside.(d)”Property” means:(i)a primary personal residence;(ii)real property; or(iii)an equitable interest in real property awarded to a person in a divorce decree by a court.
(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 that is not the primary personal residence of the individual; or(ii)$42,000 in value if the property claimed is the primary personal residence of the individual.(b)If the property claimed as exempt is jointly owned, each joint owner is entitled to a homestead exemption, except that:(i)for property exempt under Subsection (2)(a)(i), the maximum exemption may not exceed $10,000 per household; or(ii)for property exempt under Subsection (2)(a)(ii), the maximum exemption may not exceed $84,000 per household.(c)A person may claim a homestead exemption in either or both of the following:(i)one or more parcels of real property together with appurtenances and improvements; or(ii)a mobile home in which the claimant resides.(d)A person may not claim a homestead exemption for property that the person acquired as a result of criminal activity.(e)(i)As used in this Subsection (2)(e):(A)”Average index number” means the average of the 12 most recent Consumer Price Index numbers that are available in December in the year previous to the calendar year that is calculated in Subsection (2)(e)(iii).(B)”Consumer Price Index number” means a monthly number for the unadjusted Consumer Price Index for All Urban Consumers for all items as published each month by the Bureau of Labor Statistics of the United States Department of Labor.(ii)The dollar amounts in Subsections (2)(a) and (b) are for May 14, 2019, through December 31, 2019.(iii)For the calendar year 2020 and a calendar year after the calendar year 2020, the state auditor shall: (A)calculate new dollar amounts for each dollar amount in Subsection (2)(a) and (b) by multiplying the dollar amount in Subsections (2)(a) and (b) by the average index number, dividing the result by 251, and rounding to the nearest 100 dollars; and(B)publish on the Office of the State Auditor website the new dollar amounts calculated under Subsection (2)(e)(iii) no later than January 1 of the applicable calendar year.
A homestead is exempt from judicial lien and from levy, execution, or forced sale except for:(a)statutory liens for property taxes and assessments on the property;(b)security interests in the property and judicial liens for debts created for the purchase price of the property;(c)judicial liens obtained on debts created by failure to provide support or maintenance for dependent children; and(d)consensual liens obtained on debts created by mutual contract.
(a)Except as provided in Subsection (4)(b), water rights and interests, either in the form of corporate stock or otherwise, owned by the homestead claimant are exempt from execution to the extent that those rights and interests are necessarily employed in supplying water to the homestead for domestic and irrigating purposes.(b)Those water rights and interests are not exempt from calls or assessments and sale by the corporations issuing the stock.
(a)When a homestead is conveyed by the owner of the property, the conveyance may not subject the property to any lien to which the property would not be subject in the hands of the owner.(b)The proceeds of any sale, to the amount of the exemption existing at the time of sale, is exempt from levy, execution, or other process for one year after the receipt of the proceeds by the person entitled to the exemption.
The sale and disposition of one homestead does not prevent the selection or purchase of another.
For purposes of any claim or action for taxes brought by the United States Internal Revenue Service, a homestead exemption claimed on real property in this state is considered to be a property right.
If you take out a loan before going bankrupt, there is a chance that the creditors will sue you to make that debt non-dischargeable. This means that you will have to pay them back. It doesn’t throw out your whole case, but it’s still scary.
Here are the magic numbers to remember: $750 in 70 days from a cash advance and 90 days for luxury item charges of more than $500. (see below).
Today I was meeting with a client who took out a payday loan last week for $2,500 from one lender and $1,000 from another lender. She wanted to file bankruptcy right away before the creditors started calling her. Unfortunately, the money was already gone (I know, $3,500 in one week???) and she had no ability to repay them.
I told her that we could file a bankruptcy and list those debts, but that there was a pretty good chance that she would be sued by those creditors after filing bankruptcy. Each creditor would have a strong argument that she took of the money in bad faith with the intent to defraud them. And, they would win.
That being said, out of 2,516 cases of mine here in Utah in the past 13 years or so, 4 clients have been sued on that issue. Not a very high percentage, but in each case, they lost and had to pay the monies back.
(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; and (ii) for purposes of this subparagraph— (I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and (II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor; (3) neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit— (A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or (B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; (5) for a domestic support obligation; (6) for willful and malicious injury by the debtor to another entity or to the property of another entity; (7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty— (A) relating to a tax of a kind not specified in paragraph (1) of this subsection; or (B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition; (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for— (A) (i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual; (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; (10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act; (11) provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any State, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union; (12) for malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution, except that this paragraph shall not extend any such commitment which would otherwise be terminated due to any act of such agency; (13) for any payment of an order of restitution issued under title 18, United States Code; (14) incurred to pay a tax to the United States that would be nondischargeable pursuant to paragraph (1); (14A) incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under paragraph (1);
(14B) incurred to pay fines or penalties imposed under Federal election law;
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit; (16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case; (17) for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law); (18) owed to a pension, profit-sharing, stock bonus, or other plan established under section 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code of 1986, under— (A) a loan permitted under section 408(b)(1) of the Employee Retirement Income Security Act of 1974, or subject to section 72(p) of the Internal Revenue Code of 1986; or (B) a loan from a thrift savings plan permitted under subchapter III of chapter 84 of title 5, that satisfies the requirements of section 8433(g) of such title; but nothing in this paragraph may be construed to provide that any loan made under a governmental plan under section 414(d), or a contract or account under section 403(b), of the Internal Revenue Code of 1986 constitutes a claim or a debt under this title; or (19) that— (A) is for— (i) the violation of any of the Federal securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934), any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or (ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and (B) results, before, on, or after the date on which the petition was filed, from— (i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding; (ii) any settlement agreement entered into by the debtor; or (iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor.