On the day you file bankruptcy, the bankruptcy estate is created. This estate is comprised of everything you own on that day: equity in your home, furniture, 401k, and money in your bank account.
The bk trustee looks at your bankruptcy estate to see if you have any non-exempt (unprotected) assets that she can use to sell off and pay your creditors. Normally, we can exempt (or protect) your various assets under state laws. Some states even have wildcard exemptions that let you protect a certain amount (like $25,000) of anything, even a pile of cash sitting on your kitchen table.
However, Utah (and most states) don’t have a wildcard. If you have cash in your bank account on the date of filing, you will lose it. In a chapter 13, the bk trustee will ask you to pay that balance to your creditors over your 5 year plan. In a chapter 7, the bk trustee will demand that you turn over your bank account balances to pay your creditors.
Now remember, it’s only the balance on the day of filing. That means that if your payday is on a Friday, then we file the bankruptcy on a Thursday when your balances are too low to be enticing to a bk trustee.
More often than you’d think, I have clients who argue with me, saying that they like to keep a savings built up for emergencies. The trustee won’t care. She’ll take that savings when you file. You can always build up a new savings after we file the case. And as for emergencies, i would say that bankruptcy is a pretty huge emergency.
So if you have a savings built up, I will recommend that you spend it on exempt items like food storage, clothing, and new tires for your car. It never hurts to use some of that to pay your bankruptcy attorney as well!
I filed bankruptcy for a client who had just been approved for unemployment, and she had received a check for about $3,200. Unfortunately, she received and deposited this check one day before filing bankruptcy.
Normally, when we file bankruptcy, we try to keep your combined bank balances below about $300. The bankruptcy trustee can take whatever money you have on hand on the date of filing and use it to pay your creditors. So here we are, ready to file, with a nice, tempting wad of cash ($3,200) sitting in the bank account.
Thankfully, this is not the kind of money that a trustee can take. Unemployment compensation, both state and the federal pandemic unemployment) are protected from creditors, and from the bankruptcy trustee.
We filed the case, exempted the money in the bank account, and client was very happy.
(4) Except as provided for in Subsection (5): (a) any assignment, pledge, or encumbrance of any right to benefits that are or may become due or payable under this chapter is void; (b) rights to benefits are exempt from levy, execution, attachment, or any other remedy provided for the collection of debt;
(1) (a) An individual is entitled to exemption of the following property: (i) a burial plot for the individual and the individual’s family; (ii) health aids reasonably necessary to enable the individual or a dependent to work or sustain health; (iii) benefits that the individual or the individual’s dependent have received or are entitled to receive from any source because of: (A) disability; (B) illness; or (C) unemployment;
Technically, on the day we file bankruptcy, it stops any kind of collections, including garnishment, repossession, foreclosure, and even the remote “shutting off” of your leased car through Green Light Auto Solutions.
If they shut off your car after we file the bk, I can call them to turn it back on. I actually had to do that this afternoon for client who found herself stranded in California. She was a few days behind on her lease payment, and they activated the remote shutoff. Unfortunately, she was on a road trip, in California, in the middle of nowhere. She frantically called me, I called them, and they turned it back on.
However, if they have shut off your car before we file the bk, I can only force them to turn it back on if you either:
in a Chapter 7, only if you catch up on payments and are planning on keeping it, or
in a chapter 13, if you file your chapter 13 plan proposing to catch up on payments.
What this means is that if it’s shut off after we file, bankruptcy can get it turned back on. If it’s shut off before we file, you have to propose some kind of way to catch it up, or it will stay off.
MAY 11, 2020 UPDATE: You will not lose it. The Chapter 7 Trustees in Utah have been quietly ignoring it. Three of them have actually been stating on the record that they will not take it from you.
Plan on losing it, but nothing is guaranteed right now.
April 1, 2020 update: In Utah (and most states), the Chapter 13 Trustees have stated that they will not be taking the stimulus money. (See email at bottom of blog entry) At least one Chapter 7 Trustee has already stated that she will definitely take the stimulus checks.
In 2001, President Bush sent out economic stimulus checks of about $300 a person to try to jump start the economy after the .com bubble burst.
In 2008, President Bush sent out economic stimulus checks of about $600 a person to try to help the economy with the sub-prime lending/housing crash.
Today in 2020, there is very strong talk of a stimulus check of at least $1,000 to each adult to help stimulate the economy after the recession effects of the NOVID-19/coronavirus hit.
Throwing bankruptcy into the mix complicates matters. On the day you file bankruptcy, your bankruptcy estate is created. This estate includes all of your personal and real property and your tax refunds. Normally, we can exempt (protect) most of it from the bk trustee. Unfortunately, here in Utah, your tax refund is not safe from a bk trustee, so you need to receive and spend the refund before you go bankrupt, or the trustee can take it and use it to pay your creditors. That stimulus check may (or may not) be part of your bankruptcy estate.
All I know for certain is that if you receive and spend the stimulus before you file bankruptcy, it is gone, and it is not part of your bankruptcy estate.
If you file bankruptcy first, there is a good chance that you will lose the stimulus money to your trustee. It comes down to when your receive the right to receive the stimulus and what the stimulus is tied to. That being said, the only Utah case I found was actually positive for the debtors. In that case, Debtors filed bankruptcy in 2007. The Economic Stimulus Act passed in 2008, and their chapter 7 trustee tried to take that stimulus money when the checks came in. One of our current judges, Judge William T. Thurman, found in favor of the debtors (letting them keep the money). He found that since their right to receive the stimulus money didn’t arise until after their bk was filed, it was not part of the bankruptcy estate. See In Re Andrews, 386. B.R. 871 (Bankr. D. Utah 2008).
This sounds great, because it sounds like the court is saying: if the stimulus package isn’t passed until after you file bk, then you get to keep the money.
However, we have another case out of Kansas (which is admittedly NOT Utah), which forced debtors who had filed bankruptcy in March of 2008 to turn over their stimulus payment from the May 2008 Economic Stimulus Act because the triggering act to receive that stimulus was the filing of their 2007 tax returns. They lost the stimulus because the stimulus money was tied to their 2007 taxes (which occurred before the bk). See In Re Schwinn, 08-10528 (Bankr. D. Kansas 2008).
This doesn’t sound great, because the bk trustee took the money after arguing that it was tied to their taxes from the previous year.
I don’t know how the 2020 stimulus will be worded, but I fear that bk trustees will be salivating and sharpening their knives when those checks go out. Plan on losing it for now, and it you end up getting to keep the check, it’ll seem all the sweeter.
April 2, 2020 update: Here is the email from the Chapter 13 Trustee for Utah:
A number of you have inquired whether the Chapter 13 office will be requiring turnover of stimulus checks received by debtors. For your reference, attached is a copy of the new law as it relates to the Bankruptcy Code amendments. In short, the stimulus payments to debtors are excluded from Current Monthly Income in the same manner as social security payments under the amendments to section 101(10A)(B)(ii). In addition, the stimulus payments are excluded from disposable income under the amendments to section 1325(b)(2). We will not be requiring turnover of stimulus payments received by debtors. Thank you.
As for how many people this affects, I don’t know. I called a larger foreclosure law firm, and they have no idea either. On some of their cases, they have been directed (by their mortgage company clients) to do everything up to actually scheduling the foreclosure sale (notice of default, file processing, etc). On other cases, they may be putting everything on hold for the next 2 months. It is really up in the air.
What I can say is that if you fall behind on mortgage payments, you will still have the option of filing a chapter 13 repayment plan to catch up on those payments over a 5 year plan with the bankruptcy court.
CHIEF JUSTICE ISSUES ORDER COURTS ARE OPEN, BUT ALL NON-ESSENTIAL HEARINGS ARE DELAYED Salt Lake City, UT— Utah Chief Justice Matthew Durrant has issued a follow-up order to his March 12th order regarding court operation during the pandemic. Today’s order provides the public and the Appellate, District, Juvenile, and Justice courts with more detailed information about court operations in the state during the pandemic. The most important message for the public is that the Courts in the state of Utah are open for business. Effective immediately, however, all non-essential court hearings will be delayed until further notice. The order issued today provides guidance on the types of hearings that are considered essential and will not be delayed. Courts have also taken steps to lessen the spread of the virus by cancelling group gatherings, and by using technology, when possible, to hold essential hearings. “To be clear, the courts will continue to operate and provide mission-essential functions such as proceedings involving in-custody defendants and protective orders, to name a few,” said Chief Justice Durrant. “Using technology, we will continue to find ways to serve the public while reducing the number of people who need to physically come to court.” Courts will be open to accept filings. The public can find more information at utcourts.gov on COVID-19. For details on the hearings, please refer to the Administrative Order.
As of today (March 13, 2020), bankruptcy court hearings will be done by telephone, but 341 Meetings are still done in person (this will change). (5 hours after writing this, I received an email from a chapter 7 trustee cancelling the 341 Meetings for next week).
Here in Utah, the U.S Bankruptcy Court for the District of Utah just sent out an email telling the attorneys that “all hearings scheduled in the Court through April 13, 2020 shall be conducted by telephone.” General Order No.: 20-002. You can click on the link to read the order. The order was accompanied with an email to all bankruptcy attorneys stating:
Urgent: All Hearings to be Conducted by Telephone Due to Concerns of the COVID-19 Virus Mar 12, 2020, 5:28 PM (15 hours ago) March 12, 2020, 4:30 PM (MDT) – Due to concerns associated with the spread of the COVID-19 virus, the Court is initiating operational changes to protect the health and safety of the public, bar and the Court. By order of the Court, effective immediately, all matters scheduled through April 13 will be conducted telephonically. Instructions on how parties will make their telephonic appearance will be posted on the Court’s website at http://www.utb.uscourts.gov. In addition, if you are scheduled for an upcoming court appearance, all attorneys and unrepresented parties will be contacted by email, mail, or phone. Parties are encouraged to attempt to resolve matters without the need for court appearances to the greatest extent practicable.
This order helps protect the judiciary and attorneys for court appearances, but unfortunately, most of bankruptcy appearance revolve around the 341 Meeting of Creditors, where 8-20 debtors and creditors meet in a meeting room with their attorneys and the bankruptcy trustee to conduct their 341 Meeting. As of today, the 341 Meeting are still in person. That being said, this morning (March 13, 2020), the Chapter 13 Trustee for Utah Lon Jenkins, just sent out an email sharing the court order above and also advising that:
In addition, the Chapter 13 Office will be working in the coming days to establish a protocol for conducting section 341 meetings remotely to avoid the necessity of large group gatherings.
Thank you for your cooperation during this challenging time.
In other words, those in-person 341 Meetings are probably going to be rescheduled and/or conducted telephonically.
Until then, if you’re worried about exposure to a group of strangers at the 341 Meeting, you should let your attorney know. He should be able to reschedule the meeting until everything gets sorted out. I have a strong hunch that the courts will be signing all of those motions to continue/reschedule almost immediately.
Good luck, and wash your hands.
Update: 5 hours after posting this, I received an email from a chapter 7 trustee stating:
I have just been notified by the US Trustee’s Office that the 341 Meetings scheduled for March 16, 2020 will not be held. The Meetings will be continued and the Court will send notice to all parties in interest. Please notify your clients.