I just wrecked my car (and someone else’s). Will bankruptcy take care of that?

Yes, unless you were doing something really, really bad.

When you file bankruptcy, most debts can be discharged (wiped out). Some debts have a priority status, like most taxes, student loans, child support/alimony, and criminal restitution. Those debts are NOT discharged by the bankruptcy.

So let’s say that you’re in a car accident and your financed car is wrecked. Hopefully, your insurance will cover it and pay the lender. But, sometimes insurance lapses, or doesn’t cover the whole loan balance. In that kind of situation, you can file bankruptcy and list the car loan balance in the bankruptcy. If there is a deficient balance that is not covered by your insurance, or your deductible, or lack of insurance, that balance will be wiped out by the bk.

As for the other car, if it’s your fault, hopefully your insurance will cover it. Unfortunately, there are times when you are not carrying insurance. (Shame on you)! In that kind of situation, the other driver might even sue you for the damages you caused. This debt can be listed in your bankruptcy.

But here’s the caveat: sometimes the damage to the other driver may NOT be discharged by the bk. This only happens if you were doing something really, really bad. If you did it willfully, or maliciously, or while intoxicated, you be NOT protected by the bankruptcy.

Under 11 U.S.C 523, these kinds of debts are not dischargeble:

(6)for willful and malicious injury by the debtor to another entity or to the property of another entity;

(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;

See 11. U.S.C. 523

What happens to my 2021 tax refund if I file bankruptcy in 2022?

You lose it, unless you spend it first. But you won’t lose those pandemic relief tax monies (see below).

Some states will give you an exemption to protect your tax refund monies. Utah is not one of them. In fact, in most states, you have to use it or lose it. If you’re unsure, call a bk attorney in your state and find out.

I’ve written a few articles on this, and the links are below.

When you file bankruptcy, it is the bk trustee’s job to discover assets that you have. Specifically, he wants to find assets that can be sold off and used to pay your creditors. Normally, the trustee will look at equity in your home, money in your bank account, the value of you car, and any tax refund monies that you have NOT received yet.

This means that you have to receive and spend your tax refund before you file bankruptcy, or there is a good chance that the bk trustee will intercept it and use it to pay your creditors.

Here, I will try to give you a quick and dirty list of the do’s and don’ts of spending your tax refund monies.

Don’t:

  1. pay off Mom and Dad before you file bk
  2. buy a new toy, like a dirtbike
  3. hide the money and claim that you spent it
  4. buy jewelry
  5. prepay rent

Do:

  1. buy food storage and clothing
  2. buy boring household appliances like washer/dryer/refrigerator/freezer/stove/sewing machine
  3. buy guns (really) (I can protect up to 3 of any value)
  4. pay for vehicle repairs and tires
  5. pay your attorney for your bankruptcy

Pandemic stimulus tax payments and tax credits.

If you haven’t received these yet, don’t worry. These are exempt from creditors, including the bankruptcy trustee.

Here are the old blog articles:

How can I protect my 2019 tax refund if I file bankruptcy in 2020?

Spend it before you go bankrupt!

Utah has NO exemptions to protect your tax refund when you file bankruptcy. This means that if you go bankrupt before you receive and spend your tax refund, you will lose it. The chapter 7 trustee will take your refund and use it to pay your creditors. On the other hand, if you wait just a little bit to file and receive your refund, you can spend it all before filing bankruptcy.

Just remember to spend it on exempt items.

You can definitely use it to pay your bankruptcy attorney to prepare your case.

Don’t pay off friends or family!  Call me if you have any questions on how to spend it.  You can even text me on a Saturday at noon as you’re standing in an RC Willey trying to decide if you should purchase the new $800 bunk bed set for the twins (yes, you can). You can text me at 801-787-8860.

The list is below, but you’re always safe with food storage, clothing, washer, dryer, refrigerator, freezer, stove.

Here is a rehash of my post on this same issue last year (and the year before):

What happens to my 2018 tax refund if I file bankruptcy in 2019?

What happens to my 2017 tax refund if I file bankruptcy in 2018?

What happens to my 2016 tax refund when I file bankruptcy?

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

Utah Exemptions Act, Utah Code Title 78B Chapter 5, Section 505https://le.utah.gov/xcode/Title78B/Chapter5/78B-5-S505.html

An individual is entitlted to an exemption in …

(viii) (A) one:

(I) clothes washer and dryer;

(II) refrigerator;

(III) freezer;

(IV) stove;

(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.

Can I discharge unemployment overpayments in bankruptcy (state unemployment and pandemic PUA)?

Maybe.

Short answer: You can discharge unemployment overpayments in both a chapter 7 and a chapter 13, but only if they don’t fight you over it for fraud. If they fight you, you’ll lose.

Long answer: Most debts are dischargeable in bankruptcy (they can be wiped out). There is a pretty limited list of debts that are non-dischargeable. Under 11 U.S.C. 523, the following debts are non-dischargeable (see list at bottom of page, with bold added).

Unemployment overpayments are not specifically listed in the group of debts that cannot be discharged. In other words, they normally can and are discharged. However, if the state has alleged fraud with those overpayments, it opens a whole new can of worms.

If the state has alleged that you committed fraud in receiving those benefits, you can still list them in your bk. After you file, the state has 3 months to file a bankruptcy lawsuit to show that those overpayments were received by fraud. If they file that lawsuit, called an “adversary proceeding,” you are probably going to lose. You will still owe those overpayments. If the state gets a bankruptcy court judgment that those debts are based on fraud, they win, and you’ll still need to pay them back, eventually.

Now I know that you are thinking that you didn’t mean to commit fraud, and you’ll fight them in bankruptcy court to prove that you are right. “Fraud” is such a harsh term, and it was more of a simple accounting misunderstanding. However, it’s expensive to fight them (this is not part of your normal bankruptcy), and they are almost always right. If you really think you can beat their fraud lawsuit, be prepared to pay at least another $5,000 to yet another attorney to fight their adversary proceeding.

And yes, this applies to state unemployment benefits, and those federal Pandemic Unemployment Assistance (PUA) payments as well.

Here is that list of debts that cannot be discharged:

(note that there are many exceptions to the tax ones).
(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 [2] 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 2 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.
For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.

Do I have to keep paying my car loan after I file for bankruptcy?

Only if you want to keep the car. If you stop paying for it, they will repossess it.

When you file a chapter 7 case, you check a box on your paperwork that says “reaffirm” or “surrender.” If you reaffirm the debt, you keep making payments with the same balance, terms, and payment (see below). If you surrender, then you stop making payments and let them repossess the car (but since you filed bk first, they cannot report it as a repossession on your credit, and they cannot sue you for the difference).

When you file a chapter 13, if you want to keep it, then you can either keep paying for your directly (outside of your chapter 13 plan), or you can propose to pay for it monthly as part of your chapter 13 plan. Either way, you keep paying for it. If you want to surrender it, then stop making payments.

So if you want to keep something that you financed, then you need to keep paying for it.

Every now and then I have a client ask me if the bk wiped out their car loan. They are asking because they sincerely believe that the bk would wipe out the loan and let them keep the car free and clear. It doesn’t work this way. Bk discharges your personal liability for the loan, BUT the loan is still attached to the collateral. If you want to keep the collateral (like the car), then you have to keep paying for it.

If you stop paying, they cannot sue you on the loan, which was discharged, but they can definitely repossess the collateral (your car or truck).

I am receiving an insurance settlement from my car accident. When does the hospital lien attach, and can bankruptcy discharge that lien?

Complicated answer: The hospital lien immediately attaches to any settlement or insurance proceeds, and bankruptcy does NOT discharge that lien.

Generally, your insurance proceeds/settlement are exempt, or safe from creditors (and the bankruptcy trustee) under Utah law. See

Utah Code 78B-5-505 (1)(a)(x) “An individual is entitled to exemption of… proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.

However, before you file bankruptcy, your hospital creditors have an opportunity to file a “hospital lien,” which is a lien or claim against those insurance monies.

Below, I am going to cover the hospital lien statute in a little more depth and give a recent Utah bankruptcy case dealing with when the lien attaches.

Hospital Lien Statute (Utah Code 38-7-1):

The hospital lien attaches automatically, but is only perfected after:

  1. medical services are provided
  2. notice of the lien is given
  3. the lien is then perfected when verified written notice is filed in the state district court where the hospital is located, and
  4. the notice of lien must be sent by certified mail to the person/parties liable for the injuries and to the insurance carrier.

In fact, the hospital can perfect its lien after you file bankruptcy. Filing bankruptcy does NOT get rid of their lien, and their perfection of that lien does NOT violate bk law.

Now what if they haven’t even provided notice of the lien before filing bankruptcy? I’m not sure. Someone is going to have to take that argument before the bankruptcy court.

The United States Bankruptcy Court for the District of Utah covered this issue in In Re Cloward, 608 B.R. 759 (Bank.D.Utah 2019) here.

What is the statute of limitations for medical bills and credit cards collecting on me?

It varies a lot. Here in Utah, you can count on 6 years being about standard.

The statute of limitations means the amount of time a creditor has to file a lawsuit against you for some kind of debt. For example, you had a medical procedure done 10 years ago, and they just barely got around to filing a lawsuit against you in state court. That lawsuit could be thrown out if you assert the defense that the statute of limitations has run.

Basically, the debt is too old, and they missed their chance.

Here in Utah, the statutes of limitation for debt collection look like this:

8 years

judgment — 8 years from date of judgment (unless they renew it, then the 8 years starts again)

6 years

credit cards — 6 years from date on signed contract or 4 years from last payment received

car loan — (it’s a signed contract)

gym membership — (it it’s a written agreement, otherwise only 4)

medical debt — (6 years or 4 years, depending on whether or not there’s a written contract)

4 years

store accounts (like an RC Willey account)

for work performed (without a contract)

open account for services or materials — (no contract here either)

verbal contract — (Not in writing. That’s why is says “verbal.”)

3 years

fraud — 3 years from date of discovery (when the defrauded person learns that he’s been defrauded)

2 years

wrongful death

1 year

libel, slander, false imprisonment, or seduction — 1 year (and to be honest, I’ve never had a seduction case before, dang it!)

Here are the actual statutes:

1 year

78B-2-302

An action may be brought within one year:

(4) for libel, slander, false imprisonment, or seduction;

2 years

78B-2-304

An action may be brought within two years:

(2) for recovery of damages for a death caused by the wrongful act or neglect of another;

3 years

78B-2-305

An action may be brought within three years:

(2) for taking, detaining, or injuring personal property, including actions for specific recovery; except that in cases where the subject of the action is a domestic animal usually included in the term “livestock,” which at the time of its loss has a recorded mark or brand, if the animal strayed or was stolen from the true owner without the owner’s fault, the cause does not accrue until the owner has actual knowledge of facts that would put a reasonable person upon inquiry as to the possession of the animal by the defendant;
(3) for relief on the ground of fraud or mistake; except that the cause of action does not accrue until the discovery by the aggrieved party of the facts constituting the fraud or mistake;

4 years

78B-2-307

An action may be brought within four years:
(1) after the last charge is made or the last payment is received:
(a) upon a contract, obligation, or liability not founded upon an instrument in writing;
(b) on an open store account for any goods, wares, or merchandise; or
(c) on an open account for work, labor or services rendered, or materials furnished;

6 years

78B-2-309

(1) An action may be brought within six years:
(a) for the mesne profits of real property;
(b) subject to Subsection (2), upon any contract, obligation, or liability founded upon an instrument in writing, except those mentioned in Section 78B-2-311; or
(c) to recover fire suppression costs or other damages caused by wildland fire.
(2) For a credit agreement, as defined in Section 25-5-4, the six-year period described in Subsection (1) begins the later of the day on which:
(a) the debt arose;
(b) the debtor makes a written acknowledgment of the debt or a promise to pay the debt; or
(c) the debtor or a third party makes a payment on the debt.

What happens to my personal injury lawsuit or settlement when I file bankruptcy?

Nothing.

(Last week I went to lunch with a personal injury attorney. He paid, because I do poverty law. I wanted to be well-versed in the intersection of personal injury law and bankruptcy law, so I went to my own blog from 2014 and then did some research to see if anything had changed. Nothing has changed. The old blog post is here: https://robertspaynelaw.com/myutahbankruptcyblog/2014/01/23/what-happens-to-my-personal-injury-suit-or-settlement-when-i-go-bankruptcy/ )

At least, nothing will  happen to it if you do it right.  Under the Utah Exemptions Act, you can exempt (protect)

proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual or of the wrongful death or bodily injury of another individual of whom the individual was or is a dependent to the extent that those proceeds are compensatory.

What this means is that if you are already receiving a personal injury settlement payment each month, or a lump sum settlement, that money is protected from creditors and from the bankruptcy trustee demanding turnover, so long as the damages you’re being paid for are compensatory in nature.  In other words, if the settlement’s terms state that it is to compensate you for pain and suffering or compensate you for something, then the money is safe.  On the other hand, if the money coming to you is a result of punitive damages, that is bad.  It is not exempt, and you will lose it.

Compensatory = good.   Punitive = bad.

Now what happens if you’re involved in a personal injury suit that hasn’t been settled yet and you have to file bankruptcy?  The trustee may allow your attorney to stay on the case but will want updates on how the settlement is going.  There is a very tiny chance that the trustee will want you to use a different attorney, and he will appoint a different attorney to your case.  This is very rare.

But, if the case eventually settles for compensatory damages, then you’re okay.

When do the foreclosure and eviction moratoriums end (in Utah)?

July 31, 2021.

(Not just in Utah, but in almost every state unless your state has passed some kind of state extension).

Here is a link to the Utah Courts page on “Eviction Information for Tenants.” The single best part of the page is a simple statement that “[t]he moratorium does not forgive rent.” In fact, the whole paragraph is pretty important:

The moratorium does not forgive rent. You are required to make partial payments for rent if you can. Rent, late fees and penalties can still accrue during the moratorium. If you have not paid all of the back rent you owed when the moratorium ends on July 31, 2021 you could be evicted. You are also required to comply with all other terms of your lease

By the same token, that foreclosure moratorium does not forgive missed mortgage payments (called arrears). You are still liable for those payments, and if you can’t catch up, they can foreclose.

Even the various loan forbearance programs don’t forgive those mortgage payments. If you don’t have a deal specifically modifying your loan, then those payments are coming due very soon.

So how does bankruptcy help:

well, it can stop an eviction and it can stop a foreclosure.

I’ve covered these topics on the links below, but if you’re facing eviction or foreclosure, bankruptcy is a pretty good option.

Will the bankruptcy trustee take my recovery rebates or tax credit under the American Rescue Plan?

Nope, they’re safe.

On March 25, 2021, the United State Justice Department issued a “NOTICE TO CHAPTER 7 AND 13 TRUSTEES REGARDING TREATMENT OF RECOVERY REBATES AND TAX CREDITS FOR CONSUMER BANKRUPTCY DEBTORS UNDER THE AMERICAN RESCUE PLAN ACT OF 2021.” You can read it here.

In the Notice, the DOJ says that:

Chapter 7 and 13 trustees should not consider recovery rebates or child tax credits in administering estate assets or calculating disposable income in chapter 13 repayment plans.

What this means is that:

  1. the money is not an asset (so the bk trustee cannot take it in a 7 or a 13), and
  2. it doesn’t count as income (so it doesn’t increase your chapter 13 plan payment)

Basically, this money was intended to help families, and they get to keep it. It doesn’t help families for a bk trustee to take it, pay creditors, and charge a healthy service fee to debtors for the privilege of taking and administering their money.