In most cases, bankruptcy wipes out your personal liability for debts, including secured debt like mortgages and car loans. However, those secured debts are still secured (attached) to your property. In other words, the mortgage is secured by your home. If you want to keep the home, you still need to pay the debt attached to it. Even if your personal liability is wiped out, they can still come after the property if you stop paying for it.
This morning, I started going through my morning email and saw the following question from a client in a chapter 13 case:
I do not make my monthly payments for my home equity anymore do I? is the home equity not included in the bankruptcy? How am I supposed to afford paying the monthly amount to the trustee, the home equity payment, mortgage, and utility bills?
It’s valid question. The horrible answer is that you have to pay for things if you want to keep them.
Home equity lines of credit (or HELOCS) are confusing to most people. Many clients think that these are not “real” mortgages and can be wiped out like a credit card. This is wrong. A heloc is a real 2nd mortgage. It is attached to your house, and if you want to keep the property, you have to pay the loans attached to it.
Basically, if you are over, then you are a chapter 13. If you are under, then you are a chapter 7. (The current figures are at the bottom of this page).
W2 wage earner —– Normally, when I ask someone how much they make, I am trying to determine if they can qualify for a chapter 7 case. Most people can give me a straight answer because most people have steady W2 income. These cases are fairly straightforward.
High income client — If I am dealing with a person with W2 income who makes too much money, I won’t get a straight answer. They will inevitably ask the following question: “Are we talking about after all my expenses?” The annoying attorney-phrased answer is “kind of.” The moment someone says this, I know that they’ll be a complex case and most likely a chapter 13 repayment type of case. I can subtract standard IRS averaged expenses, reasonable car payments, alimony/child support, charitable contributions, and a slew of other expenses, but those expenses are generally standard expenses that average clients can take out. I just need the gross income as a starting point. I’ve come to realize that the reason they ask about expenses is because they subconsciously know that they make too much and are hoping that I can run my figures after taking out luxury items such as their $250 a month pet insurance or $950 Lexus lease. (I don’t).
Here’s a good recent example: I ask a potential client for her income and her husband’s income. She says they each make $xxx an hour. Notice that she didn’t give me a straight answer. I ask for paystubs. She only sends a recent January paystub. Over the course of 3 days and about 8 email, she finally admits: “He works a lot of OT and gets quarterly bonuses. He averages 100 hours per pay period and in the summer more. I’ll send a bunch more paystubs.” It’s been a week, and I still don’t know how much they make (gross or net). However, I’m betting that they are well above the median income, and they’ll have to be in some kind of chapter 13 repayment plan.
I begin by looking at your gross. I then take out normal, acceptable expenses. If you are “living large,” I cannot take that into account. When the US Trustee (Department of Justice) audits your case, they won’t allow me to deduct personal expenses like a $500 a month spa plan. That is not a reasonable expense, and it is an unfair detriment to your creditors (if you pay that $500 to the spa instead of your creditors). I know that it sounds unfair to the person who believes that the expense is reasonable, but there’s been enough litigation to prove that you can claim standard expenses, not luxury ones.
Self-employed client — If I’m dealing with a self-employed person, they will ask me the following question: “Are we talking about my business gross income, or the net after expenses?” If you are self-employed, then I use the gross as a starting point, but after we take out legitimate business expenses, it’s that net number that we’ll really be using.
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: $81,1672
Married with 2 children: $91,810
Married with 3 children: $100,810
Married with 4 children: $109,810
Married with 5 children: $118,810
Married with 6 children: $127,810
Married with 7 children: $136,810
Married with 8 children: $145,810
Married with 9 children: $154,810
Married with 10 children: $163,810
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.
These are the standard questions that a bankruptcy trustee will ask you at a 341 Meeting of Creditors. This doesn’t mean that these are the only questions you’ll face, but these are the most common. Unless you have some interesting asset like a family vacation home in a trust which your dad set up years ago, you should be fine.
You can discharge them in a chapter 13 (usually), but it may not be worth the extra attorney’s fees and 3 years of waiting for that to happen.
In a chapter 7, it will not discharge a debt ” to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit ….” 11 U.S.C. 523(a)(7).
This means that your traffic fines/citations will survive a chapter 7 case. That being said, if you file chapter 7 and discharge all of your other debts, that should hopefully free up enough of your monthly income to pay off the speeding tickets rather quickly.
A good rule of thumb is that priority debts like most taxes, student loans, criminal restitution, and child support/alimony survive your chapter 7 case. Everything else disappears. It goes without saying that if you’re unsure if a debt will be discharged, that you should ask a bankruptcy attorney.
As for the speeding tickets, the best way to prevent them is to (in the words of my law enforcement friends) “stop breaking the law, jackass.” Unfortunately, I seem to have a lead foot.
That being said, I’m an attorney, and every answer has a bunch of caveats (disclaimers).
Children under 18 —
Car. If your child is under the age of 18, you own everything that is “his.” So if you buy a car for your son and give it to him for Christmas, if he’s under 18, you have to be on the title. If you are on the title, then it’s yours.
Cash and Bank accounts. When you set up a special bank account that is for your 6 year old daughter, the bank will require you to be on the account, because she is a minor. So let’s say you give her $500 for Christmas and deposit it into her account. In your mind, it’s her money, and she can use it for whatever she wants. She’s 6! it’s your money.
Electronics. My 6 year old desperately wants a $50 drone for Christmas. I know this will end up badly, but I’m going to get it for him. The bk trustee won’t care about a $50 drone. On the other hand, if you buy your 14 year old a $1,000 iphone, that’s a problem. She’s under 18, so the phone is yours, and the bk trustee may be interested in it.
Children over 18 —
You have to be very careful with giving gifts of substantial value to anyone before you file bankruptcy. In an extreme example, I’ve had a client who “gifted” her $15,000 truck to her brother one month before filing bankruptcy. She didn’t tell me about it. At the 341 Meeting of Creditors, her Chapter 7 Trustee definitely had some questions!
For a more realistic example, the bk trustee can scrutinize anything you give away before filing bankruptcy. This may be the year to give a card with a heartfelt poem, or even some of those personalized socks with your face on them. If you give $500 to each of your 4 children, that’s $2,000 that you gave away before filing bk. There is a good chance that the bk trustee will want to get that money back to pay your creditors.
Presents from someone else (like Grandma and Grandpa) If your child is under 18, that is your property. There is still a chance that the bk trustee will take it.
It sounds awful, but it’s the bk trustee’s job to review your assets (including gifts and transfers) to see if there is anything she can use to liquidate and pay off your creditors. If you have a question, you should ask your attorney before you make the transfer.
You’ve got a few options. Just remember that if you are late, your case gets dismissed!
When you file bankruptcy, you are required to pay a filing fee to the court (generally $310 for a chapter 13 or $335 for a chapter 7). Some people pay it up front, but most people make those payments in installments to the court after filing. Here is the court website dealing with filing fees: https://www.utb.uscourts.gov/filing-without-attorney/filing-fees
So let’s say that you filed a chapter 7 today, you could pay the court filing fee as follows:
$100 in 2 weeks
$100 in 4 weeks
$135 in 8 weeks.
The big problem arises when people actually try to make the payment. Here are the payment options that they will accept:
cash, and U. S. Postal Service money orders, cashier’s checks, travelers checks (payable to U.S. Bankruptcy Court), attorney or law firm checks (payable to the U.S. Bankruptcy Court) and American Express, Discover, MasterCard, and VISA for payment of fees.
Here is where you can make the payment:
Online — There is NO online option. No, you cannot pay it online.
Phone — You can call the bankruptcy court clerk at 801-524-6687 and make your payment over the phone using a debit card or someone else’s credit card. Just remember that they close their office by (or a little before) 4:30 p.m.
Mail — If you really want to trust the vagaries of using actual snail mail, just make sure that you send it on time, with the right address, with the right amount. Please note that it’s a bad idea to try to pay through the mail.
In Person — You can drive to the Bankruptcy Court at 450 S. Main, Salt Lake City, UT 84101, go through the security checkpoint, and pay the clerk in person on the third floor at the clerk’s office.
Your Attorney — This might seem like a great idea for you: pay your attorney and he’ll make the payment for you. It’s not really a good idea at all. If you drive to your attorney’s office on the day the payment is due with cash in hand, he may or may not be in and may or may not have this payment on his radar. Pay it yourself; it’s much safer.
Honestly, just pay them over the phone the day before the payment is due. It’s clean and simple.