With a sluggish economy, I have met with an increasing number of small business owners who are considering personal bankruptcy to deal with credit card debt and personal loans, but who want to keep their business assets and credits separate. Is this possible.
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Last week I wrote a post about car titles. Specifically, I discussed the issues that arise when a bankruptcy debtor's name appears on vehicle titles when theose vehicles are actually used, maintained and kept by the debtor's parents. Now comes a similar related question about inherited money.
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If you are financing your home purchase with a large mortgage company, there is a good chance that your lender has set up an escrow account to collect and pay your county real estate taxes. Mortgage companies escrow taxes and insurance to protect their interests – a lapse of insurance coupled with a fire or flood could destroy the loan collateral (your home) and a lapse of tax payments could lead to a tax sale.
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If you plan on filing bankruptcy after January 1 of next year or of any year, you need to speak with your lawyer regarding whether your income tax refund can be protected. If you overpaid your taxes and are due a refund, that refund becomes your property on January 1, even if you have not yet filed your return.
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What happens if you forget to tell your bankruptcy lawyer about a pending lawsuit or even a pending claim? Nothing good – there is a very strong chance that the defendant can use your omission as a defense to your claim.
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My question is if someone comes to you to file BK individually, but she is due a tax refund that is in her name as well as her husband's, could the bank trustee only take 1/2 of the refund since the other 1/2 is considered an asset of her husband who is not filing?
–Jennifer
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Attorney Rachel Foley has written a very helpful article in the Bankruptcy Law Network blog about how to determine your vehicle's value for bankruptcy purposes. I agree wholeheartedly with her recommendation that you take your vehicle to CarMax for a written valuation.
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p>My husband has been given benefits but we are being advise a judgement will be placed for medical procedures that insurance should have covered but didn't. The facilty was subcontracted out by the doctor and was never given our insurance information to file on. Upon calling that insurance company, they have said that the claims is now too old for them to pay on. Can the attorney take my husbands social security benefits for the judgement.
Jonathan Ginsberg responds: Social Security benefits cannot be garnished by this type of civil judgment creditor. However, if you are using direct deposit and the Social Security funds are going into an account where you keep other money, your bank may inadvertantly honor a fi fa on the judgment.
I would consider sending a letter to the lawyer who is representing the judgment creditor to advise him that your husband's sole source of income is Social Security and therefore exempt from garnishment.
Be aware, however, that other assets – his house, other bank accounts, other assets – can still be at risk.
Another point to consider – does this creditor have a legal right to sue? Claims for breach of contract are subject to statutes of limitations. If this debt is ten years old, for example, it may be "stale" and no longer actionable. Recently, I have heard about a number of lawsuits filed on stale debt – if the defendant does not raise this issue, you could be stuck with judgments even when the underlying claim is bogus. There is a remedy to challenge this type of judgment called a "collateral attack on the judgment" but collateral attacks are expensive and time consuming.
If you receive a lawsuit on a debt that seems unusually old, it would probably be worth the time to run the case by a lawyer. My colleague Bill McLeod of Boston, regularly writes about Fair Debt Collection Practice horror stories. If you are under any illusion that collection agencies are trustworthy entities, some of the examples Bill cites of egregious actions by bill collectors will open your eyes.
If you have other assets at risk, and the judgment is large enough, a bankruptcy might be something to consider. As a rule, you are better off filing bankruptcy before a judgment is issued, but there is a procedure in bankruptcy practice called "avoiding the lien" where a judgment lien can be stripped and made into an unsecured debt.
Technorati Tags: Social Security benefits and judgments, garnishment + Social Security, stale debts, FDCPA, motion to avoid lien
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p>My colleague, attorney Chip Parker from Jacksonville, has written a timely post in the BankruptcyLawNetwork blog about how to save your income tax refund if you are thinking about filing for bankruptcy. Chip suggests that you file your tax returns sooner rather than later, then spend your refund on ordinary and necessary expenses. You would have to reveal receipt of the income tax refund on your bankruptcy schedules, but you would have the benefit of the money and the odds are very small that your bankruptcy trustee would challenge your use of this money.
Chip's advice falls into the general category of "pre-bankruptcy planning." Under the current bankruptcy law, pre-bankruptcy planning has become increasingly important. Now, more than ever before, the bankruptcy laws empower trustees and creditors to try to squeeze whatever they can from debtors. All the paperwork your file will be scrutinized. "Good faith" and "best efforts" have been replaced by demands for documents, proof of income and expenses, and tax returns.
In some cases, the means test will show "disposable income" when in real life, there is nothing there. In this unfriendly environment, you, as the debtor, need to look for every opportunity to protect and preserve your assets and cash flow. Do not assume that the bankruptcy system will give you any breaks.
I know I sound like a broken record, but START EARLY. Don't wait until the lawsuits are filed or the repo man in circling before talking to a lawyer. If I could send one message out to people in even mild financial distress, it would be to find a bankruptcy attorney long before you are facing any sort of emergency. In January alone, I met with over ten potential debtors who could file now, but who will have a much better result if they wait for two or three months. Sometimes, the goal is to create a paper trail of payments to creditors to show good faith, and sometimes the goal is to water down the effect of a one-time bonus for median income purposes.
There are enough pressures on bankruptcy debtors under the new law. Find a lawyer who will act aggressively on your behalf and fight back!
Technorati Tags: income tax refund and bankruptcy, Chip Parker, Bankruptcy Law Network, pre-bankruptcy planning
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p>My colleague, Florida bankruptcy lawyer Jonathan Alper, recently wrote a post on his Florida Bankruptcy Law blog about issues arising in the case of a debtor's receipt of an inheritance within six (6) months of filing. Under the bankruptcy law, any inheritance received by the debtor within six months of filing becomes property of the estate and can be seized by the trustee and distributed like any other non-exempt asset.
Chapter 7 trustees typically question debtors about any expected inheritance at the 341 hearing. Jonathan posed the question of what might happen if a debtor, knowing that he was the beneficiary of a will, advised his a sick or dying relative about the bankruptcy and the relative thereupon decided to change the beneficiary so that the assets would not be seized.
Jonathan concludes that the debtor has no duty to advise the trustee about the "new" beneficiary's inheritance. He reasons that the dying relative is not part of the bankruptcy and that the relative has the right under State law to change the beneficiary at any point.
I agree with Jonathan's analysis….to a point. I think that if the numbers are big enough, an aggressive Chapter 7 trustee would go after the proceeds of the estate and argue that circumstantial evidence suggests fraud. I think it is unlikely that the original beneficiary or the new one would admit that there was a concerted effort to move assets out of the estate. However, just as in the case of a "fraudulent transfer" that would deny discharge under Section 727 of the Code, intent can be inferred from the action of the parties.
I think the bigger issue here may relate to the nature of advice that bankruptcy lawyers can give to their clients. As a zealous advocate, a bankruptcy lawyer can advise his client about the six month rule, and, if asked, about wills and estate rules that permit a testator to change his beneficiaries. I also think that that bankruptcy lawyer should advise his client about the potential risk of a claim by the trustee.
To a certain degree, therefore, the bankruptcy lawyer's job is to help his client manage risk, while at the same time avoiding being backed into a situation where the lawyer has independent knowledge of a client's plan to misrepresent statements on bankruptcy schedules. Jonathan Alper concludes that his hypothetical debtor has a "legitimate position." I think this is the right way to analyze this type of ethical dilemma.
As long as the debtor (and his lawyer) have a reasonable argument grounded in statute or case law, is there any reason why the lawyer ought not provide his client with information about a range of choices starting with the most aggressive position?
Technorati Tags: Chapter 7 and expected inheritance, inheritance as property of the estate, Jonathan Alper
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Jonathan Ginsberg
