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.
Here is a rehash of my post on this same issue last year (and the year before):
You lose it unless you’ve already spent it.
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
An individual is entitlted to an exemption in …
(viii) (A) one:
(I) clothes washer and dryer;
(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.
Here are some helpful prior posts:
I know. This isn’t bankruptcy. But it could lead you to bankruptcy, and it is pretty interesting financial news.
When you file your chapter 7 case, you are seeking a discharge of your debts. In most cases, you file the case, meet with the bk trustee a month later, take the second online class (the Debtor Education class), and then you get your discharge at the end of month 3.
However, getting your discharge does NOT mean that your case automatically closes.
Your case will not officially close out until the trustee files a final report in your case. Generally, your case will close out that same month that you get your discharge. If you have assets worth collecting on (like an upcoming tax refund or too much equity in your home/car), then the bk trustee may keep the case open while he sells off the asset, sends a letter to your creditors, pays them off, and then files a report to close out the case.
No Asset Cases
In most cases, he’ll file a No Asset Report (or Report of No Distribution), which states that you have nothing worth selling off to pay creditors. Here is what it looks like:
Chapter 7 Trustee’s Report of No Distribution
Chapter 7 Trustee’s Report of No Distribution: having been appointed trustee of the estate of the above-named debtor(s), report that I have neither received any property nor paid any money on account of this estate; that I have made a diligent inquiry into the financial affairs of the debtor(s) and the location of the property belonging to the estate; and that there is no property available for distribution from the estate over and above that exempted by law. Pursuant to Fed R Bank P 5009, I hereby certify that the estate of the above-named debtor(s) has been fully administered. I request that I be discharged from any further duties as trustee. Key information about this case as reported in schedules filed by the debtor(s) or otherwise found in the case record: This case was pending for 5 months. Assets Abandoned (without deducting any secured claims): $ 2740.00, Assets Exempt: $ 5200.00, Claims Scheduled: $ 50347.00, Claims Asserted: Not Applicable, Claims scheduled to be discharged without payment (without deducting the value of collateral or debts excepted from discharge): $ 50347.00. (Hunt tr, Mary)
In these cases, you have something that the trustee wants to sell off and use to pay your creditors. These cases take longer because he needs to liquidate the asset, notify your creditors to file claims, review the claims, and file a report to pay them off and close out the case. This is a fairly complicated topic, and I’ll save it for another entry.
However, it may take up to 2 years for your case to close out in this scenario. Your credit still starts rebounding once you get your discharge, but the case takes much, much longer to close out.
For a teaser, here is an asset case where the Debtors received their discharge in September, but the case didn’t close out until December.
Filing Date # Docket Text 12/12/2017 (3 pgs) Order Approving Chapter 7 Trustee’s Final Report & Account for XXXXX tr, Trustee Chapter 7, Fees awarded: $ 297.00, expenses awarded: $ 0.00; Awarded on 12/12/2017 (avt) (EOD: 12/12/2017) 12/12/2017 (3 pgs) Pending Order (Other) related documents(s): 16 Trustee’s Final Report (TFR) Filed by: (XXXX) [Order# 343738] (EOD: 12/12/2017) 11/18/2017 (6 pgs) BNC Certificate of Service – Notice. (related document(s):Notice of Filing Trustee’s Final Report and Account Before Distribution). Notice Date 11/18/2017. (Admin.) (EOD: 11/18/2017) 11/15/2017 (4 pgs) Notice of Filing Trustee’s Final Report and Account Before Distribution (related document(s): Trustee’s Final Report (TFR)) filed by XXXX) (EOD: 11/15/2017) 11/09/2017 (9 pgs) Chapter 7 Trustee’s Final Report. Reviewed by United States Trustee Filed by the US Trustee for XXXX tr (XXXX (EOD: 11/09/2017) 11/07/2017 (2 pgs) Application for Compensation forXXXX tr, Trustee Chapter 7, fee: $297.11, expenses: $0.00. Filed by XXXX) (EOD: 11/07/2017) 10/30/2017 Remark Re: Bill. No fees due at this time. (avt) (EOD: 10/30/2017) 10/27/2017 Trustee’s Request for a Bill. XXXX) (EOD: 10/27/2017) 09/15/2017 (3 pgs) BNC Certificate of Service – Order of Discharge. (related document(s): Order Discharging Debtor(s)(auto)). Notice Date 09/15/2017. (Admin.) (EOD: 09/15/2017) 09/13/2017 Order Discharging Debtor(s)(auto) (Admin.) (EOD: 09/13/2017) 09/05/2017 (1 pg) Personal Financial Management Course Certificate for Joint DebtorXXXX Provided by 001 DebtorEdu LLC, 8006103920 (EOD: 09/05/2017) 09/05/2017 (1 pg) Personal Financial Management Course Certificate for Debtor XXXX Provided by 001 DebtorEdu LLC, 8006103920 (EOD: 09/05/2017)
It depends on what you want to happen.
When we file a chapter 7 bankruptcy, we check a box that states whether we want to surrender a secured loan (like a car loan) or reaffirm and keep it. With you own car, it is normal to check the box to reaffirm the debt and keep making payments on it. With an ex-spouse, it is a bad idea to reaffirm that debt. You should simply wipe out your liability on it and move on. If they want to keep the vehicle, they’ll have to keep paying on it.
Now there are always exceptions. Let’s say that as part of the divorce decree, you were ordered to keep up payments on her minivan, then maybe you should reaffirm it. Or maybe you’re the only name on the loan, you still have a good relationship with her, and she is good at making the payments. You can still reaffirm and keep it (although most attorneys don’t like you to reaffirm on anything). But generally, we list it and wipe it out.
In a chapter 13, it’s just about the same. If you want to surrender your liability on the loan, you can do so. If she wants to keep it, she’ll need to keep paying for it. If you want to keep the loan yourself and keep paying on it, it may be a little more tricky. The chapter 13 trustee will want a very good reason for you to keep this secured debt for something you don’t even drive.
Ex-Spouse Assumes Car Loan
Now I often get asked if you can list the loan in your bankruptcy and have your ex-spouse assume the loan with the bank. This is a matter between them and the bank. I have never actually seen it work, since divorce wrecks your finances and credit (and hers too). It is possible, but very unlikely.
It depends on whether you want to keep the home or give it up.
Fight it if you want to try to save the home.
Ignore it if you’re surrendering the home anyways.
So when you file bankruptcy, the Bankruptcy Court imposes something called the automatic stay that stays (stops) creditor actions like garnishment, foreclosure, and repossession. If the creditor wants to remove that protection, they file a Motion for Relief from Stay (“MFRS”), asking the court to remove the stay so that they can foreclose (or repossess).
If you were planning on surrendering the home anyways, then you can ignore it. They’ll lift the automatic stay, eventually foreclose on the home, and you will no longer have it in your possession. But since you filed bk first, they CANNOT come after you for the deficiency in most cases, and they CANNOT report it on your credit as a foreclosure. If you do nothing, the home and creditor will go away, and you will suffer no further negative credit or collection repercussions.
Now if you want to keep the home, that’s different story. You can object to the motion, but you usually need to throw money at them to make it go away. If you are three months behind on mortgage payments since filing your bk, then you’ll either need to catch up in one lump sum and start making regular mortgage payments again, or you’ll need to get on a repayment plan plus start making regular mortgage payments again. If you cannot, then they will win the motion, and you’ll lose the home.
You could object and say that you are trying for a loan modification, but unless you have the loan mod in place, this really isn’t a valid objection.
You can also object and say that they are wrong on their calculations, but I’ve only seen a handful of cases where the debtor was correct and the mortgage company was grossly off.
It all comes down to money. If you can throw enough money at them, they will go away.
Here is what a normal Motion for Relief from Stay looks like (I actually received this one last night):
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF UTAH
Bankruptcy Case No. XXX
MOTION TO TERMINATE AUTOMATIC
STAY AS TO LAKEVIEW LOAN
Lakeview Loan Servicing, LLC, hereinafter referred to as (“Secured Creditor”), hereby
moves the Court pursuant to 11 U.S.C., Section 362(d), Bankruptcy Rules 4001 and 9014 and
Local Rules 4001-1 and 9013-1, for an order terminating the automatic stay with respect to the
following described real property (the “property”) located in Tooele County, State of Utah:
XXX, according to the
Official Plat thereof recorded in the office of the Tooele County
Together with a nonexclusive right and easement of use and
enjoyment in and to the Common Areas described, and as provided
for, in said Plat and said Declaration and Covenants, Conditions,
and Restrictions, which include the rights of ingress and egress
over and across the private streets located within said project;
Commonly known XXXXX
so that it may proceed to pursue its rights and remedies under applicable law. This motion is
based on the following.
1. That on or about January 28, 2016, Debtors executed their Note and Trust Deed,
which Note and Trust Deed are in default. Secured Creditor is the current beneficiary of the
Trust Deed. Copies of the Note, Trust Deed, and Assignment of Trust Deed are attached hereto.
2. That Debtors have not made their post-petition monthly payments as required by
their plan and as of November 8, 2017, are in arrears three (3) post-petition payments being from
September 1, 2017 to November 1, 2017.
3. That Debtors have failed to provide Secured Creditor with adequate protection of
its interest in the property.
4. That Debtors have no realizable equity in the property.
5. That the above allegations constitute sufficient cause pursuant to 11 U.S.C.,
Section 362(d) entitling Secured Creditor to an order terminating the automatic stay so that
Secured Creditor may proceed to pursue its rights and remedies under applicable law.
6. That Secured Creditor is entitled to its reasonable attorney’s fees, costs and
expenses for bringing this motion in accordance with its note and trust deed.
7. With respect to Rule 4001(a)(3), the Court should allow immediate enforcement
of any order for relief granted herein.
8. Secured Creditor services the loan on the Property referenced in this Motion. In
the event the automatic stay in this case is modified, this case dismissed, and/or the Debtors
obtain a discharge and a foreclosure action is commenced on the mortgage property, the
foreclosure will be conducted in the name of the Secured Creditor. Secured Creditor directly or
through an agent, has possession of the Note. The Note is either made payable to Secured
Creditor or has been duly endorsed.
WHEREFORE, Secured Creditor moves the Court for the following relief:
1. That the evidentiary hearing to be held within thirty (30) days of the date of this
motion, in accordance with 11 U.S.C., Section 362, be the final evidentiary hearing on this
2. That the automatic stay pursuant to 11 U.S.C., Section 362, be modified and
terminated to permit Secured Creditor to immediately exercise its rights and remedies under
applicable state and federal law. In the alternative, the Debtors should be ordered to provide
Secured Creditor with adequate protection of its interest in the property;
3. For attorney’s fees, costs and expenses and such further or other relief as the Court
4. Any order based on stipulation governing the continuation and termination of the
automatic stay or any order granting relief from the automatic stay should not be amended or
altered or superseded by the confirmation order entered in this case but should be considered a
part of and integrated into the confirmation order. Further, if the automatic stay is terminated
prior to confirmation, the automatic stay should not be reimposed by the entry of the
5. Secured Creditor seeks relief in order to, at its option, offer, provide and enter into
any potential forbearance agreement, loan modification, refinance agreement or other loan
workout/loss mitigation agreement. Any such agreement shall be non-recourse unless included
in a reaffirmation agreement. Secured Creditor further requests that it be allowed to contact the
debtors via telephone or written correspondence to offer such an agreement.
Honestly, nothing. Most of my clients don’t bring any documents to their first consultation, but it wouldn’t hurt to be a little prepared.
Here’s what you don’t need: money. I hate taking money at the first meeting, because I want you to go home and really, really think about it. Yes, I know that you’ve been thinking about it for at least 6 months or more before you call me, but one more night won’t hurt. You also don’t need money to pay for the initial consultation. It’s free.
Here’s what you could bring to speed things along:
- paystubs — Sometimes, the main factor determining whether you can file a Chapter 7 or a Chapter 13 is your income. If you make too much, you might be looking at a repayment plan. If you bring your paystubs, we can calculate your 6 month averages to see where you fall.
- collection notices — This will give the attorney a good idea of where you are in the collection process. If you’re still getting nasty letters saying that they will send you to their legal department, there is not a real rush for time. If you have garnishment paperwork from your employer, then we need to file this case by Wednesday so that I can notify payroll to stop that Friday garnishment. If you have a foreclosure notice for next Tuesday, then we’d better do something by Monday to save the home.
- credit report — Maybe. If you have set up an account at www.creditkarma.com, you do NOT need to print it out, but make sure to log in to your account at the office so that the attorney can save a .pdf copy of your report.
- taxes — not really necessary, but I’d love to see how large your tax refund was last year. You’ll eventually need them before you file, but they don’t make a huge difference for the first consultation.
- online class (Credit Counseling) — no. You don’t need to do this before you meet with your attorney.
- secured loan documents — Yes please. Mortgage statements and car loan balances will make a huge difference on determining the value of your assets.
So if you want to be extra-prepared, then bring paystubs, collection notices, your creditkarma login info, and secured loan documents, and you’re good to go.
You lose them.
In bankruptcy, we list all of your assets and then exempt (protect) them. Most assets, like $3,000 of equity in your car, or 100% of your 401k, or all of your clothing on your back are protected under state or federal bankruptcy exemptions. However, some assets are not protected.
For example, here in Utah, you can protect 3 firearms. So if your have 4 shotguns, then one of them is not protected, and there is a chance that the bankruptcy trustee will want to liquidate it (sell it) and use the proceeds to pay your creditors.
Bitcoins are a kind of investment, but not one protected under our exemptions. So let’s say that you bought 3 bitcoins a couple of years back for $1,000. Now they’re just sitting in your bitcoin wallet somewhere in the internet ether. When we list your assets prior to filing bankruptcy, we will have to list those at their current fair market value. As of today, it looks like bitcoins are selling for about $7,000 u.s.d. (See https://www.coindesk.com/price/ ). In other words, your internet bitcoins could sell today for 3 x 7,000 = $21,000.
When we file bankruptcy, the bk trustee will most likely ask you to liquidate those, give him the proceeds, and he’ll use them to pay off your creditors. Now that’s in a chapter 7. If you file a chapter 13, the bk trustee won’t make you sell them, but he’ll demand that you pay at least $21,000 back to your unsecured creditors over a 5 year chapter 13 plan.
Either way, you lost the value of those bitcoins to your creditors.
You might think that there is no way for the bk trustee to track your bitcoin ownership, and you may be right. However, the truth has a funny way of coming out. Angry exes will always pop up at the wrong time. The bk trustee may be looking at your bank statements and ask you what that $100 transaction was at www.coinbase.com last month when you decided to dabble in ethereum and litecoins. There is always an electronic or paper trail. Besides, you really should be honest because it’s just not worth the fraud charges and denial of your bk discharge.
So in essence, if your bitcoins have any value on the date of filing your bankruptcy, then you will probably lose them.