Answers to Questions on Bankruptcy and Social Security Disability
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Can a Capter 13 Bankruptcy be used to reorganize my business debts.?
CHAPTER 13 BANKRUPTCY IS AVAILABLE TO INDIVIDUALS WITH A REGULAR SOURCE OF INCOME
The filing of a Chapter 13 Bankruptcy is available to an individual with a regular source of income. The Bankruptcy Code defines regular source of income, as "income that is sufficiently stable to enable such individual to make payments under a plan under Chapter 13". Most people who file Chapter 13 do so to prevent a sheriff sale and to reorganize their mortgage debt, to pay delinquent taxes or simply because they are not eligible to file a Chapter 7 Bankruptcy for some reason.
CHAPTER 13 BANKRUPTCY CAN BE USED TO CONTINUE OPERATING A BUSINESS AND REORGANIZE ITS' DEBTS
Section 1304 of the Bankruptcy Code defines a debtor engaged in business as "a debtor that is self-employed and incurs trade credit in the production of income from such employment is engaged in business". For instance, if a person owns their own business as a sole proprietor, then any business debts on which they have personal liability can be included in their Chapter 13 Bankruptcy. Similarly, if a person is a partner, the partnership's assets would not become property of the bankruptcy estate, but only the individual debtor's interest in the partnership. Likewise, the individual's liability for their portion of partnership debts would be considered in the bankruptcy. The debtor has to file the case in their name, not in the name of the business, as a business entity cannot file for Chapter 13 Bankruptcy. Corporations, partnerships, limited liability companies (LLC) and other non-individual entities are not eligible to file Chapter 13. If you want to file a bankruptcy with respect to those particular entities, then a business Chapter 11 bankruptcy is required. However, it should be noted that an individual is also eligible to file under Chapter 11. Generally, it is more preferable though to file under Chapter 13. The reason is that more extraordinary costs are often incurred under a Chapter 11, such as increased attorney fees, quarterly U.S. Trustee fees and the possible compensation of committee's counsel. Also, the petition filing fee in a Chapter 11 Bankruptcy is $1,717.00, whereas the petition filing fee in a Chapter 13 Bankruptcy is only $310.00. A Chapter 13 is simpler and just less time-consuming that a Chapter 11.
DEBT LIMITATIONS DETERMINE ELIGIBILITY TO FILE A CHAPTER 13 BANKRUPTCY
The Bankruptcy Code does restrict an individual's ability to file under Chapter 13. Oftentimes self-employed debtors have many financial obligations and may not be eligible to file a Chapter 13 Bankruptcy. The debt limitations are non-contingent and liquidated debts that existed on the date of the bankruptcy filing that are no more than $1,184,200.00 in secured debts and $394,725 in unsecured debts. Situations may arise where your property is secured by debts that total more than the allowed amount, but the property is actually worth less than that allowed amount. The courts have utilized a valuation test and have taken the position that the value of the security determines the qualifications to file a Chapter 13. To the extent there remains an unsecured portion after applying the valuation test, then that unsecured portion is to be considered amount the unsecured debts in arriving at the debtor's qualification to file a Chapter 13.
THE "MEANS TEST" ALSO APPLIES TO A CHAPTER 13 BUSINESS DEBTOR
A debtor is required to file a statement of current monthly income aka the means test upon filing a Chapter 13 Bankruptcy. This looks at all income the debtor has received for the past six months prior to the month of the filing of the petition. The means test applies to an individual debtor filing a personal Chapter 13 Bankruptcy, as well as an individual filing a business Chapter 13 Bankruptcy. The current monthly income or disposal income for a business is calculated on the basis of gross income minus expenses that are necessary for the "continuation, preservation and operation of such business". The means test will then determine how long the applicable commitment period is. Otherwords, how long does one have to continue in Chapter 13. The commitment period for most debtors engaged in business is normally 60 months. An exception to the filing of such a statement would be the filing of a Chapter 7 Bankruptcy where the majority of the debtor's debts are business related. Chapter 7 only requires the filing of a statement where the debtor's debts are primarily consumer debts.
CHAPTER 13 DEBTOR ENGAGED IN BUSINESS REQUIRED TO SUBMIT CERTAIN DOCUMENTATION
A Chapter 13 trustee oversees all Chapter 13s and is required to obtain certain specific information from the debtor. If the debtor is engaged in business, then the trustee is required to elicit additional information, such as "investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of such business, and any other matter relevant to the case or the formulation of a plan". In order to better assist the trustee, a self-employed person or debtor engaged in business must complete a business questionnaire, with attachments of various types of financial information. It is also necessary to submit monthly operating reports showing the ongoing operation of the business.
A CHAPTER 13 DEBTOR MAY UTILIZE CASH COLLATERAL, BUT ONLY UPON APPROVAL
In order for a debtor to continue operating his or her business, it is oftentimes necessary to obtain funds to meet everyday business expenses. The normal source of those funds would be to use cash collateral. The Bankruptcy Code defines cash collateral as "cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which both the estate and an entity other than the estate have an interest". Therefore, it is necessary for the debtor to take certain first steps upon filing a Chapter 13 Bankruptcy. Section 363(c)(2) and 363(c)(4) prevents the use of cash collateral without obtaining the consent of the creditor who holds a security interest in such collateral or to obtain the approval from the Bankruptcy Court. Also, if any security agreement so provides, cash collateral may also include any existing proceeds or after acquired. A Chapter 13 business debtor is considered to be a fiduciary of any cash collateral and therefore is required to segregate or set aside an account for such collateral.
One type of debt that many people are faced with are criminal fines. This category can include fines, fees, surcharges or any other costs assessed by the courts, various administrative agencies or other entities. It is important to determine just what type of debt you are faced with:
1) Fine: (this type of debt is normally imposed by a court as a penalty for committing an infraction, misdemeanor or felony); or
2) Fees: (this type of debt is an administrative fee, such as a user fee that is designed to recoup the costs of various types of actions, such as prosecution, incarceration, supervision of criminal defendants or other actions); or
3) Surcharges: (this type of debt is usually a flat fee or percentage that is added to a fine to fund a particular government program); or
4) Interest, collection costs, payment plan costs and penalties: (these are additional costs, such as interest, collection costs and late fees that may be assessed as part of your fine, fees or surcharges due to delinquent or late payments); or
5) Restitution: (this type of debt is imposed by the court to remburse the victim for the damage he or she has suffered by the actions of th defendant).
These types of debts cannot simply be ignored in hopes that they will go away. Non-payment of these debts can have serious consequences. Filing bankruptcy can be an orderly way of dealing with these debts. The type of bankruptcy you file will often determine whether you can readjust or even eliminate the particular debt.
Fines are generally not dischargeable in a Chapter 7 Bankruptcy. The particular section of the Bankruptcy Code states that a debt is not discharged 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". It is important to point out that to be nondischargeable the debt must be owed to a governmental unit. Also, if the debt is of a punitive nature, then the exception to non-dischargeability does not apply. A Chapter 13 Bankruptcy
Many penalties and fines are dischargeable in a Chapter 13 Bankruptcy.
Are the funds in my retirement account protected upon the filing of bankruptcy?
RETIREMENT FUNDS THAT HAVE RECEIVED A FAVORABLE DETERMINATION UNDER THE INTERNAL REVENUE CODE CAN BE EXEMPTED IN THE BANKRUPTCY CASE
Retirement funds are protected to the extenxt that those funds are in an account that has received a favorable determination under the Internal Revenue Code. Such determination is that the funds are basically exempt from taxation. Retirement funds are either excluded from the bankruptcy estate or can be exempted under most state exemptions or the federal exemptions. The types of retirement funds that are referrred to under the Internal Revenue Code are as follows:
IRC $401-a qualified (ie. tax-deferred) pension, profitsharing and stock bonus plan created under a trust established by an employer for the exclusive benefit of employees or beneficiaries.
IRC $403-qualified (ie. tax-deferred) annunity plans that are established by an employer for an employee under IRC $404(a)(2) or $501(c)(3).
IRC $408-individual retirement accounts (IRA), which is "a trust created or organized for the exclusive benefit of an individual or his beneficiaries."
IRC $408A-a Roth IRA.
IRS $414-other retirement plans for controlled groups of employees, including predecessor employers, partnerships or proprietorships, governments and churches.
IRS $457-eligible deferred compensation plans established and maintained by eligible employers.
IRS $501(a)-retirement plans established and maintained by defined tax-exempt organizations.
RETIREMENT FUNDS THAT HAVE NOT RECEIVED A FAVORABLE DETERMINATION UNDER THE INTERNAL REVENUE CODE CAN POSSIBLY STILL BE EXEMPTED IN THE BANKRUPTCY CASE
There are particular instances where the funds in a retirement fund have not received a favorable determination under the Internal Revenue Code, but those funds can still be exempted and protected if the debtor can show:
1) no prior or unfavorable determination has been made by a court or the Internal Revenue Service; and
2) the retirement fund in question is in substantial compliance with requirments of the Internal Revenue Code; or
3) the retirement fund in question is not in substantial compliance with the requirments of the Internal Revenue Code and the debtor is not responsible or the cause of the failure of the Internal Revenue Code to be in compliance.
DIRECT AND INDIRECT TRANSFERS FROM ONE ACCOUNT TO ANOTHER CAN BE EXEMPTED
As long as the retirement fund or account is a qualified account under any of the Internal Revenue Code section's referenced above and is exempt from taxation, then any direct transfer of funds from one account to another shall continue its' protected status and be exempt under the Bankruptcy Code. For instance, any distribution that is in the nature of a rollover distribution and such distribution is deposited into the new fund or account within 60 days after the direct transfer of the funds continue to be exempt. It is necessary that both funds be qualified funds when making a transfer. Otherwords, the funds must be transfered from a fund or account that is qualifed into a fund or account that is also qualified, without the funds ever coming into contact with the debtor. However, indirect transfers or rollovers are permitted as well. An example would be where the debtor closed out one qualified account and received those funds, then within 60 days opened up a new qualified account and deposited the funds.
EVEN IF AN ACCOUNT IS NOT TREATED UNDER THE INTERNAL REVENUE CODE, IT MAY STILL BE EXEMPT
A troubling situation that arises on occasion is where a person has a retirement account that is not treated under the Internal Revenue Code within the context of this particular exemption. Many federal employees have a retirement vehicle known as a thrift savings plan, which is not treated under the Internal Revenue Code, but rather Title 5 of the United States Code. The question then becomes whether such funds are exempt under the Bankruptcy Code? The bankruptcy courts have treated such funds as exempt. Such plans are exempt from taxation under a different section of the Internal Revenue Code, so the courts have concluded that such plans were intended to be exempt in bankruptcy as well.
RETIREMENT FUNDS ARE ALWAYS PROTECTED REGARDLESS OF THE CHOICE OF EXEMPTION
In Pennsylvania, retirement funds are exempt under either the state exemptions or the federal exemptions. However, if a person was ever faced with a situation where their particular state did not allow them to take the federal exemptions and the particular state exemptions did not allow for the exemption of retirement funds, then those funds can still be exempted under the Bankruptcy Code, as a different section of the Bankruptcy Code was created to address such a situation.
INHERITED IRA'S ARE NOT CONSIDERED RETIREMENT FUNDS FOR PURPOSES OF EXEMPTIONS
Sometimes a situation that person may be faced with prior to filing bankruptcy is that they inherited an IRA. The question is whether an inherited IRA can be exempted? Very few courts have addressed this issue, but those courts have concluded that such an IRA is not exempt or protected from creditors. An inherited IRA is not viewed as your typical retirement, and is not exempt from taxation under the Internal Revenue Code.
RETIREMENT LOANS SURVIVE ANY BANKRUPTCY FILING
One of the key benefits of a bankruptcy is the imposition of the automatic stay. The automatic stay is what prevents a creditor from being able to collect against you. In order to proceed with any collection activities against the debtor, it is first necessary to obtain relief from stay or permission from the court. However, the Bankruptcy Code provides certain exceptions to the automatic stay whereby relief from stay is automatically granted and therefore it is not necessary to obtain the court's permission. One of the exceptions to the automatic stay is the withholding of income from the debtor's wages that is used solely for the repayment of a loan that was taken out against a retirement plan treated under the Internal Revenue Code or a thrift savings plan treated under Title 5 of the United States Code. The Bankruptcy Code provides for the exception from the automatic stay for the collection of payments toward any loans taken out from a pension, profit-sharing, stock bonus, or other qualified plan under the Internal Revenue Code, likewise such loans have been granted an exception to discharge and survive any bankruptcy. Otherwords, the debtor will continue to remain responsible for those loans.
EXEMPTING THE DEBTOR'S RIGHT TO RECEIVE PAYMENT UNDER A RETIREMENT PLAN
Once a person finally retires and starts receiving payments from their retirement account, it is then necessary to exempt those funds under a different section of the Bankruptcy Code. Section 522(d)(10)(E) of the Bankruptcy Code may used by debtors only in those states that have not opted out of the federal bankruptcy exemptions. Pennsylvania is one of those states that has not opted out and you may use this exemption. In order to qualify under this exemption, the retirement plan must be a stock bonus, pension, profitsharing, annuity or similar plan or contract. Also, such payments must be on account of illness, disability, death, age or length of service to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. However, the plan must not have been established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan arose and such payments are on account of age or length of service and such plan does not qualify under $401(a), $403(a), $403(b) or $408 of the Internal Revenue Code, which is mentioned above. It should be pointed out that a plan does not have to be tax-qualified in order for the funds to be exempt under Section 522(d)(10)(E). Tax-qualification is only required if the plan was established by or under the auspices of an insider that employed the debtor and payments are on account of age or length of service. For purposes of the Bankruptcy Code, insiders include directors and officers of corporations, general partners of partnerships and persons in control of plan sponsors. In essence, if the debtor is not an insider, the plan may be exempted uner $522 (d)(10)(E) without tax-qualification, but if the debtor is an insider then tax-qualification is required in order to use the exemption.
EXPERIENCE COUNTS WHEN SELECTING AN ATTORNEY
If you are uncertain as to whether your retirement accounts would be protected in your bankruptcy or simply have any other questions, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd today. You may contact him by calling 412-471-9670 or by completing our contact information form. A free consultation will be scheduled at your convenience.
Are there ever any circumstances where a person is precluded from filing for bankruptcy when they have been the debtor in another bankruptcy case within the past 180 days?
The Bankruptcy Code provides that an individual, who has been a debtor in another bankruptcy case within the past 180 days and that case was dismissed due to either 1) the willful failure of the debtor to abide by court orders or to proceed with the proper prosecution of the case; or 2) to have requested and obtained the dismissal of the case after a creditor has previously filed a request for relief from the automatic stay, then such individual is not eligible to file another bankruptcy case for 180 days.
It is important to note that dismissal under this section of the Bankruptcy Code only pertains to cases that were dismissed within the previous 180 days. Any cases that have been dismissed more than 180 days ago are not effected. Therefore, a person is eligible to file a subsequent bankruptcy case. Also, the previous bankruptcy case must have been dismissed due to the willful misconduct of the debtor or the filing of a voluntary dismissal by the debtor following the filing for releif from the automatic stay by a creditor. If the case was dismissed for any other reason, then a person is not prevented from filing a new bankruptcy case within the next 180 days.
Another point worth noting is that the prohibition on filing applies to bankruptcies filed under any chapter of the Bankruptcy Code. This applies not only to the previous case that was filed, but also to any new case. For instance, a debtor who had a Chapter 7 Bankruptcy dismissed is not eligible to file another bankruptcy under any chapter of the Bankruptcy Code, including another Chapter 7 or a Chapter 13. Likewise, a debtor who had a Chapter 13 Bankruptcy dismissed is not elibible to file another bankruptcy under any chapter of the Bankruptcy Code, including another Chapter 13 or Chapter 7.
One of the reasons for an individual's ineligibity to file another bankruptcy case is due to the fact that the previous case was dismissed for the willful failure of the debtor to abide by court orders or to proceed with the proper prosecution of the case. Willful misconduct must be something that is more intentional or deliberate rather than something that is simply accidental or beyond the debtor's control. The courts generally look to the totality of the circumstances of the debtor's conduct in the prior bankruptcy case. In otherwords, whether the debtor's actions are a deliberate effort to delay the proceedings to the detriment of the creditors. If the court determines that the debtor was not making an effort to delay the proceedings, then willful misconduct on the part of the debtor in not likely to be found. Willful misconduct not only applies to the willful failure to abide by orders of court, but also the willful failure to appear before the court in the proper prosucution of the case. The court will look to the entire conduct of the debtor in arriving at the decision as to whether such conduct was willful. Normally, the failure to make the monthly Chapter 13 plan payments in a Chapter 13 Bankruptcy or the failure to appear for the meeting of creditors is not enough by itself to make a finding of willful failure to appear before the court. Repeated failures that often appear to serve no other purpose but to delay the proceedings is the type of willful misconduct that will lead to dismissal under this section of the Bankruptcy Code.
Another type of criteria for dismissal under this section is where the debtor requested and obtained the voluntary dismissal of the prior case following the filing a motion for relief from the automatic stay by a creditor. This makes an individual ineligible to file a new case if the prior case was voluntarily dismissed within 180 days of the filing of the new case. The reason behind such prohibition is to prevent an individual from abusing the process and preventing and/or hindering a creditor in seeking its' legal remedies. It is important to note that this prohibition applies only where the debtor requested and obtained the voluntary dismissal of the prior bankruptcy case after the filing of a motion for relief from the automatic stay. For instance, if a debtor requested the dismissal of the previous case prior to the filing of a motion for relief from stay by a creditor, then the debtor is not ineligible to file a new case within the 180 days, even though the previous case was dismissed after the filing of the motion for relief from the automatic stay. Otherwords, the creditor's motion for relief from stay must be filed prior to the debtor's request for dismissal in order for the 180 day bar to apply. This section of the Bankruptcy Code applies only where the debtor had the previous case voluntarily dismissed. Where the request for dismissal was by a creditor or the trustee, then the prohibition on filing for 180 days does not apply.
If a new case is filed and it is subsequently deterimed that it was filed in violation of the 180 day prohibition, then any automatic stay that came into effect upon the filing of the case is void and is not effective in preventing any sheriff sale or other collection efforts to moving forward.
Up to this point, it has been discussed about being prohibited from filing a new case for 180 days. However, the bankruptcy courts have the statutory authority to prohibit serial or repeat filers from filing for periods longer than 180 days.
If you find yourself in a similar situation and are uncertain about how to proceed or simply have other questions about the bankruptcy process, then contact Pittsburgh Bankruptcy Attorney Rodney Shepherd for a free consultation. Please complete the contact information form on our website or call 412 471-9670 and my secretary will immediately schedule you an appointment.
What if I am making payments in a Chapter 13 Bankruptcy and an unusal circumstance occurs that makes me unable to make payments any longer?
There may be times when a debtor is making payments through a Chapter 13 Plan, then all of a sudden he or she is hit with a particular set of events that makes it almost impossible to complete their Chapter 13 repayment plan. The Bankruptcy Code provides for the filing of a motion seeking a hardship discharge in these type of circumstances. Of course the ability to receive a hardship discharge is not without limitation. The debtor must show the following:
1) The failure to complete your Chapter 13 plan payments are due to circumstances "for which you should not be justly held accountable" (These circumstances do not need to be catastrophic or the "truly worst of the awfuls", but it is necessary to present evidence more than simply unsubstantiated and conclusory statements of the debtor's inability to complete the Chapter 13 Plan. A severe deterioration in the debtor's financial circumstances may possibly be sufficient, whereas a temporary loss of a job would not be);
2) That unsecured creditors have received at least as much as they would have received if the debtor had filed a Chapter 7 Bankruptcy (Oftentimes, a debtor might have to file a Chapter 13 Bankruptcy because they have property that they are unable to exempt. This would mean that it would be necessary to pay unsecured creditors at least the value of the nonexemt property because had the debtor filed a Chapter 7 Bankruptcy this property would have been liquidated and the unsecured crditors would have received at least the value of this property. This being the case, a hardship discharge would more likely be granted near the completion of the Chapter 13 Bankruptcy); and
3) Any modification of the Chapter 13 Plan simply would not be practticable.
A Chapter 13 Bankruptcy is generally anywhere from three to five years. In order to receive a hardship discharge, it is first necessary that the Chapter 13 Plan has been confirmed. The type of discharge that the debtor receives is similar to that received in a Chapter 7 Bankruptcy, whereas the discharge that is received in a Chapter 13 Bankruptcy is somewhat broader. If a hardship discharge is granted only unsecured and nonpriority debts are wiped out. The debtor still remains legally liable for any secured or priority debts. One other point worth noting is that upon the completion of a Chapter 13 Bankruptcy the debtor is required to certify that all domestic support obligations, such as child support, spousal support or alimony have been made. This is not a requirement to receive a hardship discharge. Otherwords, no certification regarding the payment of domestic support obligations is necessary.
So if you find yourself facing similar circumstances or you have any unanswered questions regarding bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our content information form and we will immediately contact you to schedule a free consultation.
Are the deposits of money that I have in my checking account safe upon the filing of my bankruptcy?
UPON FILING BANKRUPTCY, ANY BANK OR FINANCIAL INSTITUTION STILL MAINTAINS ITS'
COMMON LAW RIGHT OF SET-OFF
Oftentimes a person may have a deposit of money in their checking account at the time that they file bankruptcy. The question that arises is whether those monies are safe? The Bankruptcy Code provides the bank with what is known as a set-off. A set-off is when a creditor, often a financial institution, retrieves the money from the debtor's account to pay a debt owed to that creditor by the debtor. The automatic stay that comes about upon the filing of bankruptcy prohibits the set-off of any debt owed by the debtor that arose prior to the commencement of the case in which a claim could be made against the debtor. Generally, creditors may not engage in any type of collection activity to coerce the payment of a prepetition debt. However, an exeception to the rule is that a freeze on a debtor's bank account, by a bank that a debtor owes money to, is not considered a set-off that is prohibited by the automatic stay. The catch is that it must be a temporary freeze. A temporary freeze is permitted to allow the creditor to obtain relief from stay in order to exercise its' right of set-off. A permanent freeze without seeking relief from stay would clearly be a violation of the provisions of the automatic stay.
THE RIGHT OF SET-OFF MAY STILL BE DEFEATED IN THE CONTEXT OF YOUR
Even though a bank or financial institution might have a right of set-off, there are certain situations in which that right may be limited, or even defeated:
1) It has clearly been determined that if a debtor has a plan confirmed in their Chapter 13 Bankruptcy and provides for a different treatment of the claim, then any set-off or freeze is prohibited. For instance, a set-off by the IRS would be prohibited after the confirmation of a Chapter 13 plan that has provided for payment of the debt through the plan.
2) A typical situation situation that alot of debtors find themselves in is: 1) One of their debts is from a credit card issued by a bank that they have deposits with. The bank is prohibited from setting off funds that the debtor may have deposited with the bank, or 2) A debtor may have a consumer line of credit with the bank. Likewise, the bank is prohibited from placing any freeze or set-off on any funds on deposit with the bank.
3) Even though a debtor files bankruptcy, he or she is still considered to have an interest in any funds that are deposited in any account. The issue becomes whether the debtor's right to exempt those funds are superior to the bank's right of set-off. The bank is basically a general unsecured creditor, but it is subject to the debtor being able to exempt any funds that might be on deposit. However, the bank's right of set-off gives it a right that takes priority over any other creditor's claim to any funds on deposit. The majority view, which includes the Bankruptcy Court for the Western District of Pennsylvania, is that property which the debtor has been able to exempt, is not subject to set-off. Any funds that exceeds the amount that was able to be exempted may be set-off against the account.
4) Any bank or financial institution is prohibited from setting off any debt by seizing Social Security Benefits.
5) There is no right of set-off by the bank of any pre-petition debts against post-petition deposits in an account. Otherwords, only funds on deposit at the time of filing bankruptcy may be subject to being set-off. Any funds deposited after a bankruptcy is filed are safe and are not subject to set-off.
6) An exception to the automatic stay permits the IRS to set-off a pre-petition tax refund against a pre-petition tax debt. The exception is only for taxes that you owed prior to filing bankruptcy. Any tax refunds that become due postpetition are not subject to being set-off. For instance, if you are in a Chapter 13 Bankruptcy and become entitled to any tax refund for any of the years after your initial filing, then the IRS is prohibited from attaching those refunds.
Prior to filing for bankrptcy, if a person faces circumstances that may subject their funds to being seized by the bank or a financial institution, then the best way to prevent the freeze or set-off is simply to deplete the account.
If you find yourself in a similar type of situation or have any other questions about filing for bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd today at 412 471-9670 or fill out our online contact information form and schedule a free consultation.
Just what is the reaffirming of a debt in your bankruptcy?
A person files a bankruptcy with the idea of getting rid of all of their unsecured debt. However, a person has the option of reaffirming a debt or entering into what is known as a reaffirmation agreement. The consequence of reaffirming a debt is that the debt is no longer wiped out by the bankruptcy and that the debtor will remain legally obligated on the debt despite the bankruptcy filing. Since you remain legally obligated on the debt, that means that you could continue to receive collection calls or be sued in court and possibly have your property attached if you fall behind on your payments. Also, if the debtor reaffirms a debt that does not bar the discharge of that debt in a subsequent bankruptcy case. That being the case, it is seldom a good idea to reaffirm a debt. There still can be legitimate reasons why a person might want to reaffirm a debt: 1) to keep collateral that secures a debt (There could be times where a person falls behind on payments on a secured debt and the debtor does not want to pursue or convert their case to a Chapter 13 Bankruptcy. In exchange for signing a reaffirmation agreement, the creditor may agree to a payment plan on the delinquent portion of the debt and agree not to pursue collection activities, such as repossession), 2) maintain credit privileges or to improve your credit record (The creditor will most likely no longer provide a person with payment coupons, any statements related to the account or continue reporting any payments to the credit bureau if the debt has not been reaffirmed).
CAR LOANS ARE THE TYPE OF DEBTS THAT ARE THE PRIMARY FOCUS OF REAFFIRMATION AGREEMENTS
Reaffirmation Agreements play a role in Chapter 7 Bankruptcies, but are not a part of Chapter 13. The primary focus is on consumer debts or automobile loans secured on your vehicle. The Bankruptcy Code was amended back in 2005. One of the changes was that if a debtor did not sign a reaffirmation agreement, then the lender would get an automatic relief from stay and could repossess the vehicle. The creditor very seldom pursued this option. Every case was looked at on an individual basis. Such things as the year and the value of the car were considered. In any event, state law oftentimes protected a person's car from repossession, as long as the person was current on the payments. Signing a reaffirmation agreement or reaffirming the debt on your car can be a good thing if you can afford to make the payments. This can be a good way of rebuilding your credit and maintaining a good relationship with that particular lender should you want to purchase another car through them. If you are not able to make the payments or making the payments puts you in a difficult situation, then signing a reaffirmation agreement is probably not a good idea, as it can pose a major danger or risk. This debt is no longer discharged in your bankuptcy and should the creditor repossess the vehicle, then you can be held liable for the difference or deficinecy that remains on the debt after the sale of the vehicle. If you find yourself in this situation, then simply continuing to make the regular monthly payments on the debt, better known as the ride through is probably the best option for you. Even though you are not able to use entering into a reaffirmation agreement as a way to re-build your credit, you are still able to keep and use your car.
REAFFIRMATION AGREEMENTS ARE REQUIRED TO CONTAIN CERTAIN INFORMATION
The Bankruptcy Code requires reaffirmation agreements to comply with certain terms in order to be in compliance:
1) must be in writing (The agreement is essentially a contract. You are basically entering into a new contract, so you coud try to negotiate a lower payment or interest rate and even a reduction in the total amount of the debt that you owe. Some creditors may be receptive to new terms and others may not, but it is worth trying), and
2) entered into prior to discharge (The agreement must be entered into before the discharge order is entered. If you are in the process of negotiating a reaffirmation agreement and you are afraid that the discharge order may be entered rather soon, then the Bankruptcy Code allows you to file a motion to delay the entry of the discharge order so that you may finish the negotiations of your reaffirmation agreement), and
3) must contain certain "clear and conspicious" statements (a. Under certain circumstances a reaffirmation agreement can be a good idea, but entering into a reaffirmation agreement is not required. Never let a creditor make you feel that you are required to enter into a reaffirmation agreement, and b. If you entered into a reaffirmation agreement and later change your mind, you have a right to rescind. You can cancel the agreement anytime prior to discharge or within 60 days after it is filed with the court, whichever is later. However, you must notify the creditor in writing of your intention to cancel, and
4) filed with the court (The agreement must be filed with the court and the 60 day time period to rescind does not begin to run until the agreement is filed with the court), and
5) attorney declaration or court approval (The attorney must file a declaration stating that the reaffirmation agreement is a fully informed and voluntary agreement that does not impose an undue hardship on the debtor. If the debtor's budget shows that he or she does not have sufficient income to make the payments, then a presumption of undue hardship arises. The attorney is then required to certify that despite the debtor's income situation that they are able to make the payments. In situations in which a presumption of undue hardship arises, the court must review any reaffirmation agreement. The court may only approve a reaffirmation agreement if it is convinced that the agreement does not impose an undue hardship and that it is in the best interest of the debtor. The court will schedule a discharge hearing to advise the debtor of his or her rights. It will again stress that reaffirmation is not required, the right of rescission and the potentional consequences of reaffirming a debt.
There are two other points worth mentioning regarding reaffirmation agreements: 1) The debtor is required to seek court approval on any consumer debt that is not secured by real property. Otherwords, entering into a reaffirmation agreement on your mortgage or any other debt that is secured on real property does not require court approval, and 2) The court is required to approve any reaffirmation agreement on a consumer debt where a presumption of undue hardship arises, except in the case of a credit union. Otherwords, if you car loan is through a credit union it does not matter if a presumption of undue hardship arises.
If you are interested in filing for bankruptcy or have additional questions about your options, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our content information form and you will be immediately contacted today to schedule a free consultation.
What if I change my mind after I file for bankruptcy and do not want to proceed with the case?
Sometimes a person may file for bankruptcy and shortly thereafter decide that bankruptcy is really not a good fit for them. If you change your mind, then you should file a motion to voluntarily dismiss your case. Probably the most common reason for wanting to dismiss a case is that the debtor could lose a significant amount of assets. Normally, a debtor exempts all of his or her assets and they are fully protected, but there could be times when an exemption that was claimed gets denied or simply new assets are discovered. For instance, circumstances could arise where the debtor comes into certain monies that had not been expected. Also, a debtor may decide that they would like to dismiss their case, so that they could re-file and add on some additional debts that did not exist at the time of their first filing. The rules regarding the voluntary dismissal of your case are somewhat different depending on whether it is a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.
VOLUNTARY DISMISSAL UNDER A CHAPTER 7 BANKRUPTCY MUST BE "FOR CAUSE"
In a Chapter 7 Bankruptcy, the Court can only dismiss a case after a notice and hearing. That means that it is necessary for the debtor to file a motion and serve it upon all the creditors listed on the bankruptcy schedules. This being the case, the debtor still has no absolute right to dismissal in a Chapter 7 Bankruptcy. A dismissal can only be ordered by the Court upon a showing of cause. In otherwords, the debtor must give a reason for the dismissal. Just what constitutes cause is in the sound discretion of the Court. A number of factors are looked at in determining whether to voluntarily dismiss a case. However, probably the main factor that the Courts consider is whether there are any assets available to distribute to unsecured creditors. The Courts perform somewhat of a balancing act: whether dismissal would be in the best interest of the debtor compared to the prejudicial effect on the creditor. Prejudice is considered to exist where the distribution of assets would be lost by the dismissal of the case. Even in that particular case, should the debtor be able to provide an assurance or guarantee that the creditors would be paid outside of the bankruptcy, then the Court may very well agree to dismiss the case. Generally though, it is almost impossible to have your bankruptcy dismissed if there are assets to be sold. If you have been able to exempt all of your assets meaning that it a no-asset case and no creditors have objected, then the Court will most likley allow your case to be dismissed.
DEBTOR HAS ABSOLUTE RIGHT TO DISMISSAL UNDER A CHAPTER 13 BANKRUPTCY
In a Chapter 13 Bankruptcy, a debtor has an absolute right to dismissal of their case, as long as it has not been converted from another chapter. The debor must file with the Court a notice indicating their intention to voluntarily dismiss their case. Even though notice and a hearing are not specifically provided for in the Bankruptcy Code, as with a Chapter 7 Bankruptcy, the Courts generally require that the notice be served on all creditors that are listed on your bankruptcy schedules. The Courts still must dismiss the bankruptcy case and are not permitted to convert the case to a Chapter 7 since the debtor has moved to dismiss the case. The Court should allow the case to be dismissed, even if a creditor has objected to the dismissal or seeks to have the case converted to a Chapter 7. Sometimes a debtor may face the choice of having the case dismissed or converted to a Chapter 7 Bankruptcy. Dismissal may be preferred if the debtor would lose significant assets in the conversion to a Chapter 7 Bankruptcy. Therefore, it is important to note that the right to dismissal in your Chapter 13 Bankruptcy is lost upon conversion. If the Chapter 13 case was orignially filed under another chapter, the debtor may still seek to have the case dismissed, but must seek the permission of the Court through the motion's process. The Court then weighs the various factors similar to those in a Chapter 7 Bankruptcy, as to whether dismissal is in the best interest of the debtor and does not prejudice the creditor.
One matter that needs to be considered when moving to voluntarily dismiss a case is that if debtor has the case dismissed and a Motion for Relief From Stay was previously filed, then the debtor is unable to file a new case for six months.
Once a case is dismissed the debtor is placed in the situation that he or she was in prior to filing the bankruptcy. Otherwords, creditors are free to commence collection activities as if no bankruptcy case had previously been filed. Any late fees or interest that accrued during your bankruptcy filing can now be added to the amount that you owe. However, you are free to again file another case under either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.
If you are uncertain about your situation and have many questions about bankruptcy that would help you in making your decision, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our content information form. An appointment for a free consultation will be scheduled today.
Can bankruptcy help me adjust my car loan if it is upside down?
Oftentimes a person filing bankruptcy is the owner of a car that is secured by an automobile loan. Sometimes they are upside down or have negative equity in the vehicle. Otherwords, they owe more on the car than what is is worth. The Bankruptcy Code provides powerful tools that allow a debtor to limit the liens of secured creditors. There are basically two different approaches that a debtor could take depending on whether they filed a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.
THE RIGHT OF REDEMPTION IN A CHAPTER 7 BANKRUPTCY CASE
There is what is known as a right of redemption in a Chapter 7 case. The security interest held by the creditor can be eliminated upon making payment to the creditor of the value of the collateral, namely the car. The Bankruptcy Code lists certain requirements that need to be met to qualify for the right of redemption:
1. tangible personal property, and (This must be property that has been exempted by the debtor or abandoned by the Trustee. Even if the debtor has no equity in the property, so long as the debtor has a legal interest of any kind, then the property may be claimed as exempt)
2. intended primarily for personal, family or household use, and (Generally, in order to redeem a piece of property, the redemption must be for the benefit of the debtor and not for the benefit of another person)
3. must be a consumer debt, and (The Bankruptcy Code defines a consumer debt as a debt incurred by an individual primarily for a personal, family, or household purpose)
4. dischargeable debt
A redemption allows the debtor to keep their car and pay the creditor only the acutual value of the car, not the amount of the debt. Assume the debtor had a car worth 8,000, but the amount of the automobile loan was 15,000 at 8%. The debtor could finance the car and only payback the value of 9,000 at 24%. Of course the interest rate is higher, but the monthly payment would most likely still be lower than the current payment. In order to allow the debtor to make the lump-sum payment to the creditor, there are companies that provide redemption financing. Probably the best known is 722 Redemption Funding that can be found at www.722redemption.com or Redemption Financial Services at www.redemptionfinancial.com.
CHAPTER 13 BANKRUPTCY PROVIDES A TOOL KNOW AS THE CRAMDOWN
The Bankruptcy Code has a provision similar to the right of redemption utilized in a Chapter 7 Bankruptcy likewise in a Chapter 13 Bankruptcy. A debtor can change or modify the terms of the contract held by the secured creditor. That provision provides for what is known as the cramdown. The cramdown is where the debtor pays for the value of the collateral, namely the vehicle in this instance, as opposed to the full amount of the debt. In order to utilize the cramdown on your car the following conditions must exist:
1. purchase money security interest, and (The entire amount financed must be on a motor vehicle to be considered a purchase money security interest and would not include situations where the collateral secured a debt other than the price of the vehicle; a consolidation or refinancing of the automobile loan would destroy its' status as a purchase money security interest).
2. incurred more than 910 days preceeding the filing of the bankruptcy petition, and
3. collateral must be a motor vehicle, and (This provision reads that the collateral for the debt consists of a motor vehicle. If the debt is secured by any other collateral, then the restriction of the 910 days would not apply).
4. acquired for the personal use of the debtor (A vehicle that is purchased for a business use or for the use of someone other than the debtor is not considered as personal use of the debtor).
Sometimes a debtor may want to trade-in the car that they currently have toward the purchase of a new car. On occasion, their current car may be worth less than the amount that they owe on their loan, so they finance the difference as part of the purchase on the new car. The creditor does not have a purchase money security interest that secures the entire amount of its' claim. The question becomes whether this negative equity is included in the purchase money security interest. The courts take the view that the financing of negative equity is simply converting unsecured debt into secured debt. Pennsylvania takes the view that the portion of the claim that is a purchase money security interest shall remain. Even if you are unable to get past the 910 day rule, any amount that you have paid toward negative equity will be excluded from the lender's purchase money security interest.
Besides being able to utilize the cramdown, the debtor can lower the montly payment on the car loan by lowering the interest rate and possibly paying the loan over a longer period than provided by the terms of the loan.
If your automobile loan creates a burden for you and you would like to readjust your debt or simply have other questions about filing for bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney Shepherd at 412 471-9670 or fill out our contact form and you will be contacted shortly to schedule an appointment.
What are the time limitations on being able to file bankruptcy ?
A person can file a bankruptcy almost anytime in their effort to obtain a fresh start and put their financial problems behind them. However, there are certain restrictions on whether the filing can be under Chapter 7 or Chapter 13.
ELIGIBILTY TO FILE A CHAPTER 7 BANKRUPTCY
a. A person can only file a Chapter 7 every eights years. The eight year time period restricts the filing of your case within eights years of your present filing. Otherwords, it is calculated from the date of filing not the date of discharge.
b. A person cannot file a new Chapter 7, if they previously filed a Chapter 13 in which they received a discharge, and the new Chapter 7 is being filed within six years from the date of the filing of the Chapter 13. Again, it should be pointed out that the calculation is from the date of filing not the date of discharge. An exception to where a person would be able to file a Chapter 7, where the filing of the Chapter 13 which resulted in a discharge is less than six years from the previous filing, is where creditors in the earlier case were paid at least 70 percent of their claims.
ELIGIBILITY TO FILE A CHAPTER 13 BANKRUPTCY
a. A person cannot receive a discharge in a Chapter 13, if they previously filed a Chapter 7 in which they received a discharge, and the filing of the new Chapter 13 is being filed within four years of the previous filing of the Chapter 7. Again, it should be pointed out that the relevant time period is from the date of filing not the date of discharge.
b. A person cannot receive a discharge in a Chapter 13 case, if they previously filed a Chapter 13 in which they received a discharge, and the filing of the new Chapter 13 is being filed within two years of the filing of the previous Chapter 13. Again, it should be pointed out that the calculation is from the date of filing not the date of discharge.
ELIGIBILITY TO FILE A CHAPTER 13 BANKRUPTCY EVEN IF UNABLE TO RECEIVE A DISCHARGE
A person can still file a Chapter 13 Bankruptcy even though they may not be eligible to receive a discharge. The main benefit is that you will still receive the protection of the automatic stay. This is what prohibits creditors from proceeding against you. That being the case, you could file to cure a mortgage default or any other type of default.
IMPORTANT DISTICTION BETWEEN CHAPTER 13 AND CHAPTER 7
An important distinction between Chapter 13 and Chapter 7 is that a person can file a Chapter 13 and receive a discharge that is within eights years of a prior filing of a Chapter 7 that resulted in a discharge. Otherwords, the receiving of a discharge in the Chapter 13 is less than the eights years required to receive a discharge in a Chapter 7.
Since most Chapter 13s last anywhere from three to five years, a prior Chapter 13 will almost never prevent a person from filing a new Chapter 13. In essence, there are basically no restrictions on a person's ability to file a Chapter 13.
If you are seriously thinking about filing bankruptcy or simply have unanswered questions, then give Pittsburgh Bankruptcy Attorney Rodney Shepherd a call today at 412 471-9670 or fill out our client contact form. An appointment will be scheduled in which you will receive a free consultation to assist you in obtaining your much deserved fresh start.